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Axos Financial
AX
#3053
Rank
$5.24 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$92.50
Share price
-1.19%
Change (1 day)
61.80%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Axos Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q1

Axos Financial - 10-Q quarterly report FY2022 Q1


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2021
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-37709
ax-20211231_g1.jpg
AXOS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware33-0867444
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
9205 West Russell Road, Suite 400, Las Vegas, NV 89148
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (858) 649-2218
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueAXNew York Stock Exchange
__________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer  ☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No
The number of shares outstanding of the registrant’s common stock on the last practicable date: 59,501,899 shares of common stock, $0.01 par value per share, as of January 20, 2022.

AXOS FINANCIAL, INC.
INDEX
Page
1
ITEM 1.       FINANCIAL STATEMENTS
1
Condensed Consolidated Balance Sheets (unaudited) as of December 31, 2021 and June 30, 2021
1
Condensed Consolidated Statements of Income (unaudited) for the three and six months ended December 31, 2021 and 2020
2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended December 31, 2021 and 2020
3
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and six months ended December 31, 2021 and 2020
4
Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended December 31, 2021 and 2020
6
Notes to Condensed Consolidated Financial Statements
8
ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
30
SELECTED FINANCIAL DATA
34
RESULTS OF OPERATIONS
36
FINANCIAL CONDITION
47
LIQUIDITY
51
OFF-BALANCE SHEET COMMITMENTS
52
CAPITAL RESOURCES AND REQUIREMENTS
52
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
54
ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
56
ITEM 4.       CONTROLS AND PROCEDURES
56
57
ITEM 1.       LEGAL PROCEEDINGS
57
ITEM 1A.    RISK FACTORS
57
ITEM 2.       UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
57
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
57
ITEM 4.     MINE SAFETY DISCLOSURES
57
ITEM 5.       OTHER INFORMATION
57
ITEM 6.       EXHIBITS
58
SIGNATURES
59

PART I – FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par and stated value)December 31,
2021		June 30,
2021
ASSETS
Cash and cash equivalents$858,732 $715,624 
Cash segregated for regulatory purposes259,626 322,153 
Total cash, cash equivalents, and cash segregated1,118,358 1,037,777 
Securities:
Trading1,223 1,983 
Available-for-sale139,581 187,335 
Stock of regulatory agencies20,368 19,995 
Loans held for sale, carried at fair value27,428 29,768 
Loans held for sale, lower of cost or fair value11,446 12,294 
Loans—net of allowance for credit losses of $140.5 million as of December 31, 2021 and $133.0 million as of June 30, 2021
12,607,179 11,414,814 
Mortgage servicing rights, carried at fair value20,110 17,911 
Other real estate owned and repossessed vehicles251 6,782 
Goodwill and other intangible assets—net161,954 115,972 
Securities borrowed534,243 619,088 
Customer, broker-dealer and clearing receivables429,634 369,815 
Other assets476,172 432,031 
TOTAL ASSETS$15,547,947 $14,265,565 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing$3,847,461 $2,474,424 
Interest bearing8,421,711 8,341,373 
Total deposits12,269,172 10,815,797 
Advances from the Federal Home Loan Bank157,500 353,500 
Borrowings, subordinated notes and debentures260,435 221,358 
Securities loaned578,762 728,988 
Customer, broker-dealer and clearing payables528,796 535,425 
Accounts payable and accrued liabilities and other liabilities230,125 209,561 
Total liabilities14,024,790 12,864,629 
STOCKHOLDERS’ EQUITY:
Preferred stock—$0.01 par value; 1,000,000 shares authorized:
Common stock—$0.01 par value; 150,000,000 shares authorized; 68,376,837 shares issued and 59,498,575 shares outstanding as of December 31, 2021; 68,069,321 shares issued and 59,317,944 shares outstanding as of June 30, 2021
684 681 
Additional paid-in capital441,061 432,550 
Accumulated other comprehensive income (loss)—net of tax1,344 2,507 
Retained earnings1,308,725 1,187,728 
Treasury stock, at cost; 8,878,262 shares as of December 31, 2021 and 8,751,377 shares as of June 30, 2021
(228,657)(222,530)
Total stockholders’ equity1,523,157 1,400,936 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$15,547,947 $14,265,565 

See accompanying notes to the condensed consolidated financial statements.
1
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) 
Three Months EndedSix Months Ended
December 31,December 31,
(Dollars in thousands, except earnings per common share)2021202020212020
INTEREST AND DIVIDEND INCOME:
Loans, including fees$149,469 $147,085 $298,645 $288,509 
Securities borrowed and customer receivables5,366 4,666 12,217 9,743 
Investments2,241 3,628 4,524 7,016 
Total interest and dividend income157,076 155,379 315,386 305,268 
INTEREST EXPENSE:
Deposits7,805 16,095 15,517 35,649 
Advances from the Federal Home Loan Bank973 1,326 1,989 2,698 
Securities loaned218 255 469 379 
Other borrowings2,512 3,611 5,201 5,123 
Total interest expense11,508 21,287 23,176 43,849 
Net interest income145,568 134,092 292,210 261,419 
Provision for credit losses4,000 8,000 8,000 19,800 
Net interest income, after provision for credit losses141,568 126,092 284,210 241,619 
NON-INTEREST INCOME:
Prepayment penalty fee income3,294 1,579 6,280 2,947 
Gain on sale – other28 156 45 490 
Mortgage banking income4,612 10,651 9,865 30,218 
Broker-dealer fee income14,367 6,287 26,133 11,989 
Banking and service fees8,486 10,045 15,166 18,929 
Total non-interest income30,787 28,718 57,489 64,573 
NON-INTEREST EXPENSE:
Salaries and related costs39,979 38,199 80,716 76,822 
Data processing12,199 9,673 24,291 17,601 
Depreciation and amortization6,785 5,862 12,513 12,048 
Advertising and promotional3,402 3,783 6,774 6,339 
Professional services5,943 5,629 10,488 11,628 
Occupancy and equipment3,342 3,132 6,523 6,143 
FDIC and regulatory fees2,475 2,601 4,741 5,293 
Broker-dealer clearing charges3,678 2,451 7,683 4,708 
General and administrative expense8,216 4,967 16,721 11,261 
Total non-interest expense86,019 76,297 170,450 151,843 
INCOME BEFORE INCOME TAXES86,336 78,513 171,249 154,349 
INCOME TAXES25,549 23,728 50,252 46,542 
NET INCOME$60,787 $54,785 $120,997 $107,807 
NET INCOME ATTRIBUTABLE TO COMMON STOCK$60,787 $54,672 $120,997 $107,617 
COMPREHENSIVE INCOME$60,131 $55,691 $119,834 $109,995 
Basic earnings per common share$1.02 $0.93 $2.04 $1.82 
Diluted earnings per common share$1.00 $0.91 $1.99 $1.79 
See accompanying notes to the condensed consolidated financial statements.
2
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months EndedSix Months Ended
December 31,December 31,
(Dollars in thousands)2021202020212020
NET INCOME$60,787 $54,785 $120,997 $107,807 
Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $(274) and $437 for the three and $(488) and $940 for the six months ended December 31, 2021 and 2020, respectively.
(656)906 (1,163)2,188 
Other comprehensive income (loss)(656)906 (1,163)2,188 
Comprehensive income$60,131 $55,691 $119,834 $109,995 

See accompanying notes to the condensed consolidated financial statements.
3
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three Months Ended December 31, 2021
Preferred StockCommon StockAdditional Paid-in CapitalRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax		Treasury
Stock		Total
Number of Shares
(Dollars in thousands)SharesAmountIssuedTreasuryOutstandingAmount
BALANCE—September 30, 2021— $— 68,370,617 (8,875,984)59,494,633 $684 $436,528 $1,247,938 $2,000 $(228,529)$1,458,621 
Net income— — — — — — — 60,787 — — 60,787 
Other comprehensive income (loss)— — — — — — — — (656)— (656)
Stock-based compensation expense
 and restricted stock unit vesting		— — 6,220 (2,278)3,942 — 4,533 — — (128)4,405 
BALANCE—December 31, 2021— $— 68,376,837 (8,878,262)59,498,575 $684 $441,061 $1,308,725 $1,344 $(228,657)$1,523,157 
For the Six Months Ended December 31, 2021
Preferred StockCommon StockAdditional Paid-in CapitalRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax		Treasury
Stock		Total
Number of Shares
(Dollars in thousands)SharesAmountIssuedTreasuryOutstandingAmount
BALANCE—June 30, 2021— $— 68,069,321 (8,751,377)59,317,944 $681 $432,550 $1,187,728 $2,507 $(222,530)$1,400,936 
Net income— — — — — — — 120,997 — — 120,997 
Other comprehensive income (loss)— — — — — — — — (1,163)— (1,163)
Stock-based compensation expense
 and restricted stock unit vesting		— — 307,516 (126,885)180,631 3 8,511 — — (6,127)2,387 
BALANCE—December 31, 2021— $— 68,376,837 (8,878,262)59,498,575 $684 $441,061 $1,308,725 $1,344 $(228,657)$1,523,157 

See accompanying notes to the condensed consolidated financial statements.
4
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(Unaudited)
For the Three Months Ended December 31, 2020
Preferred StockCommon StockAdditional Paid-in CapitalRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax		Treasury
Stock		Total
Number of Shares
(Dollars in thousands)SharesAmountIssuedTreasuryOutstandingAmount
BALANCE—September 30, 2020515 $5,063 67,622,935 (8,407,001)59,215,934 $676 $416,285 $1,025,156 $345 $(210,560)$1,236,965 
Net income— — — — — — — 54,785 — — 54,785 
Other comprehensive income (loss)— — — — — — — — 906 — 906 
Cash dividends on preferred stock— — — — — — — (26)— — (26)
Preferred stock - Series A redemption(515)(5,063)— — — — — (87)— — (5,150)
Purchase of treasury stock— — — (171,348)(171,348)— — — — (4,015)(4,015)
Stock-based compensation expense
 and restricted stock unit vesting		— — 45,729 (17,493)28,236 1 4,610 — — (594)4,017 
BALANCE—December 31, 2020— $— 67,668,664 (8,595,842)59,072,822 $677 $420,895 $1,079,828 $1,251 $(215,169)$1,287,482 
For the Six Months Ended December 31, 2020
Preferred StockCommon StockAdditional Paid-in CapitalRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax		Treasury
Stock		Total
Number of Shares
(Dollars in thousands)SharesAmountIssuedTreasuryOutstandingAmount
BALANCE—June 30, 2020515 $5,063 67,323,053 (7,710,418)59,612,635 $673 $411,873 $1,009,299 $(937)$(195,125)$1,230,846 
Cumulative effect of change in accounting principle net of tax, adoption of ASU No. 2016-13— — — — — — — (37,088)— — (37,088)
Net income— — — — — — — 107,807 — — 107,807 
Other comprehensive income (loss)— — — — — — — — 2,188 — 2,188 
Cash dividends on preferred stock— — — — — — — (103)— — (103)
Preferred stock - Series A redemption(515)(5,063)— — — — — (87)— — (5,150)
Purchase of treasury stock— — — (753,597)(753,597)— — — — (16,757)(16,757)
Stock-based compensation expense
 and restricted stock unit vesting		— — 345,611 (131,827)213,784 4 9,022 — — (3,287)5,739 
BALANCE—December 31, 2020— $— 67,668,664 (8,595,842)59,072,822 $677 $420,895 $1,079,828 $1,251 $(215,169)$1,287,482 

See accompanying notes to the condensed consolidated financial statements.
5
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended
December 31,
(Dollars in thousands)20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$120,997 $107,807 
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion and amortization on securities, net(211)(13)
Net accretion of discounts on loans and leases(3,239)(2,684)
Amortization of borrowing costs277 284 
Amortization of operating lease right of use asset4,947 5,310 
Stock-based compensation expense8,514 9,026 
Trading activity760 42 
Provision for credit losses8,000 19,800 
Deferred income taxes(1,468)(8,354)
Origination of loans held for sale(403,287)(931,065)
Unrealized (gain) loss on loans held for sale150 104 
Gain on sales of loans held for sale(9,910)(30,708)
Proceeds from sale of loans held for sale415,291 949,009 
Amortization and change in fair value of mortgage servicing rights1,087 4,045 
(Gain) loss on sale of other real estate and foreclosed assets(358)(38)
Depreciation and amortization12,513 12,048 
Net changes in assets and liabilities which provide (use) cash:
Securities borrowed84,845 (95,203)
Customer, broker-dealer and clearing receivables(56,142)(44,306)
Other assets(109,751)60,534 
Securities loaned(150,226)106,225 
Customer, broker-dealer and clearing payables(6,629)127,859 
Accounts payable and other liabilities7,067 (5,305)
Net cash provided (used) by operating activities(76,773)284,417 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities(12,286)(57,725)
Proceeds from sales of securities75,022 — 
Proceeds from repayment of securities58,601 56,147 
Purchase of stock of regulatory agencies(13,631)(2)
Proceeds from redemption of stock of regulatory agencies13,631 — 
Origination of loans held for investment(4,636,661)(2,530,229)
Proceeds from sale of loans held for investment36,943 15,711 
Mortgage warehouse loans activity, net18,511 (710,561)
Proceeds from sales of other real estate owned and repossessed assets7,454 584 
Acquisition of business activity, net of cash paid (54,761)— 
Purchases of loans and leases, net of discounts and premiums(30,153)(1,471)
Principal repayments on loans3,413,366 2,218,068 
Purchases of furniture, equipment, software and intangibles(8,730)(5,815)
Net cash used in investing activities(1,132,694)(1,015,293)
6
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended
December 31,
(Dollars in thousands)20212020
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits1,453,375 126,442 
Payments of the Federal Home Loan Bank term advances(10,000)(55,000)
Net (repayment) proceeds of Federal Home Loan Bank other advances(186,000)(5,000)
Net proceeds (repayments) of other borrowings38,800 10,155 
Tax payments related to settlement of restricted stock units(6,127)(3,287)
Redemption of preferred stock, Series A— (5,150)
Repurchase of treasury stock— (16,757)
Cash dividends paid on preferred stock— (103)
Payment of debt issuance costs— (2,748)
Proceeds from issuance of subordinated notes— 175,000 
Net cash provided by financing activities1,290,048 223,552 
NET CHANGE IN CASH AND CASH EQUIVALENTS80,581 (507,324)
CASH AND CASH EQUIVALENTS—Beginning of year$1,037,777 $1,950,519 
CASH AND CASH EQUIVALENTS—End of period$1,118,358 $1,443,195 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowed funds$23,429 $41,194 
Income taxes paid57,763 50,574 
Transfers to other real estate and repossessed vehicles342 528 
Transfers from loans held for investment to loans held for sale36,943 8,680 
Transfers from loans held for sale to loans held for investment794 27,739 
Operating lease liabilities for obtaining right of use assets12,009 — 
Impact of adoption of ASU No. 2016-13 on retained earnings
— 37,088 
See accompanying notes to the condensed consolidated financial statements.
7
AXOS FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 2021 AND 2020
(Dollars in thousands, except per share and stated value amounts)
(Unaudited)

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements include the accounts of Axos Financial, Inc. (“Axos”) and its wholly owned subsidiaries, Axos Bank (the “Bank”) and Axos Nevada Holding, LLC (the “Axos Nevada Holding”) and collectively, the “Company”. Axos Nevada Holding wholly owns the companies constituting the Securities Business segment. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying interim condensed consolidated financial statements, presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), are unaudited and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of financial condition and results of operations for the interim periods. All adjustments are of a normal and recurring nature. Results for the six months ended December 31, 2021 are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in the audited annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to interim financial reporting. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended June 30, 2021 included in our Annual Report on Form 10-K.
Significant Accounting Policies
Our significant accounting policies are described in greater detail in Note 1 - “Summary of Significant Accounting Policies” contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2021.
New Accounting Standards
No new accounting standards have yet been adopted for the fiscal year beginning July 1, 2021.


8
2.     ACQUISITIONS
On August 2, 2021 the Company’s subsidiary, Axos Clearing, LLC, acquired certain assets and liabilities of E*TRADE Advisor Services (“EAS”), the registered investment advisor custody business of Morgan Stanley. This business was rebranded as Axos Advisor Services (“AAS”). AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low cost deposits that can be used to generate fee income from other bank partners or to fund loan growth at Axos Bank. The initial purchase price of $54.6 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments.
The Company incurred acquisition-related costs totaling $0.04 million for the six months ended December 31, 2021. There were no costs in the three months December 31, 2021. These costs are recognized in general and administrative expenses in the unaudited consolidated statements of income.
The acquisition is accounted for as a business combination under the acquisition method of accounting. Accordingly, tangible and intangible assets acquired (and liabilities assumed) are recorded at their estimated fair values as of the date of acquisition. The Company allocated the purchase price to the tangible and intangible assets acquired based on information available through December 31, 2021. The estimated fair values of the acquired assets and assumed liabilities are subject to refinement as additional information relative to closing date fair values becomes available. Any subsequent measurement period adjustments to the fair values of acquired assets and liabilities assumed, identifiable intangible assets, or other purchase accounting adjustments will result in adjustments to goodwill no later than within the first 12 months following the closing date of acquisition.
The preliminary allocation of the $54.6 million purchase price consists of $6.5 million of fair value of tangible assets acquired, $3.4 million of liabilities assumed, $27.1 million of identifiable intangible assets and $24.4 million of goodwill, all of which is expected to be deductible for tax purposes. In December 2021, the Company made a $0.2 million true-up payment based on working capital adjustments, which was recorded as an increase in the purchase price up to $54.8 million with no impact on goodwill or identifiable intangible assets. After the working capital true-up, the fair value of tangible assets acquired is $6.4 million and the fair value of liabilities acquired is $3.1 million. Identifiable intangible assets with a finite useful are amortized on a straight-line basis. Goodwill was calculated as the excess of consideration exchanged over the fair value of identifiable net assets acquired. The goodwill includes synergies expected to result from combining the acquired assets and liabilities with existing operations, coupling its custody platform with the Company existing product offerings and leveraging customer relationships through RIAs. The following table summarizes the fair value and useful life of each intangible asset acquired as of the acquisition date:
($ in thousands)Fair ValueUseful Lives (Years)
Trade Name$290 0.16
Proprietary Technology10,990 7
Customer Relationships15,650 14
Non-Compete Agreements130 1
$27,060 

The pro forma results of operations and the results of operations since the acquisition date have not been separately disclosed because the effects were not material to the consolidated financial statements.




9
3.     FAIR VALUE
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820, Fair Value Measurement, establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, 2021 and June 30, 2021. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
December 31, 2021
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
ASSETS:
Securities—Trading: Municipal$— $1,223 $— $1,223 
Securities—Available-for-Sale:
Agency Debt1
$— $— $— $— 
Agency MBS1
— 29,231 — 29,231 
Non-Agency MBS2
— — 58,752 58,752 
Municipal— 3,536 — 3,536 
Asset-backed securities and structured notes— 48,062 — 48,062 
Total—Securities—Available-for-Sale$— $80,829 $58,752 $139,581 
Loans Held for Sale$— $27,428 $— $27,428 
Mortgage servicing rights$— $— $20,110 $20,110 
Other assets—Derivative instruments$— $— $1,462 $1,462 
LIABILITIES:
   Other liabilities—Derivative instruments$— $— $85 $85 
June 30, 2021
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
ASSETS:
Securities—Trading: Municipal
$— $1,983 $— $1,983 
Securities—Available-for-Sale:
Agency Debt1
$— $— $— $— 
Agency MBS1
— 23,913 — 23,913 
Non-Agency MBS2
— — 67,615 67,615 
Municipal— 3,565 — 3,565 
Asset-backed securities and structured notes— 92,242 — 92,242 
Total—Securities—Available-for-Sale$— $119,720 $67,615 $187,335 
Loans Held for Sale$— $29,768 $— $29,768 
Mortgage servicing rights$— $— $17,911 $17,911 
Other assets—Derivative instruments$— $— $2,280 $2,280 
LIABILITIES:
Other liabilities—Derivative instruments$— $— $75 $75 
1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
2Private sponsors of securities collateralized primarily by first-lien mortgage loans on commercial properties or by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option ARM mortgages.
10
The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
For the Three Months Ended
December 31, 2021
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency MBSMortgage Servicing RightsDerivative Instruments, netTotal
Opening balance$59,851 $18,438 $2,226 $80,515 
Included in earnings—Mortgage banking income— 97 (849)(752)
Included in other comprehensive income(527)— — (527)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions— 1,575 — 1,575 
Settlements(572)— — (572)
Closing balance$58,752 $20,110 $1,377 $80,239 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $97 $(849)$(752)
For the Six Months Ended
December 31, 2021
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBSMortgage Servicing RightsDerivative Instruments, netTotal
Opening Balance$67,615 $17,911 $2,205 $87,731 
Total gains or losses for the period:
Included in earnings—Mortgage banking income— (1,087)(828)(1,915)
Included in other comprehensive income(639)— — (639)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions— 3,286 — 3,286 
Settlements(8,224)— — (8,224)
Closing balance$58,752 $20,110 $1,377 $80,239 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $(1,087)$(828)$(1,915)

11
For the Three Months Ended
December 31, 2020
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency MBSMortgage Servicing RightsDerivative Instruments, netTotal
Opening balance$17,612 $12,130 $12,999 $42,741 
Included in earnings—Mortgage banking income— (2,250)(5,020)(7,270)
Included in other comprehensive income15 — — 15 
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions— 4,434 — 4,434 
Settlements(492)— — (492)
Closing balance$17,135 $14,314 $7,979 $39,428 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $(2,250)$(5,020)$(7,270)
For the Six Months Ended
December 31, 2020
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBSMortgage Servicing RightsDerivative Instruments, netTotal
Opening Balance$18,332 $10,675 $7,416 $36,423 
Total gains or losses for the period:
Included in earnings—Mortgage banking income— (4,045)563 (3,482)
Included in other comprehensive income(307)— — (307)
Purchases, retentions, issues, sales and settlements:
Purchases/retentions— 7,684 — 7,684 
Settlements(890)— — (890)
Closing balance$17,135 $14,314 $7,979 $39,428 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $(4,045)$563 $(3,482)

The table below summarizes the quantitative information about level 3 fair value measurements as of the dates indicated:
December 31, 2021
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
Securities – Non-agency MBS$58,752 Discounted Cash FlowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
0.0 to 33.8% (2.2%)
0.0 to 8.8% (0.2%)
0.0 to 68.3% (8.9%)
2.7 to 6.6% (3.0%)
Mortgage Servicing Rights$20,110 Discounted Cash FlowProjected Constant Prepayment Rate,
Life (in years),
Discount Rate
11.5 to 60.8% (15.9%)
1.1 to 7.9 (6.2)
9.5 to 11.2% (9.6%)
Derivative Instruments$1,377 Sales Comparison ApproachProjected Sales Profit of Underlying Loans
0.1 to 0.9% (0.4%)
June 30, 2021
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
Securities – Non-agency MBS$67,615 Discounted Cash FlowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
0.0 to 25.0% (2.7%)
0.0 to 5.6% (0.6%)
0.0 to 100.0% (19.4%)
2.7 to 7.2% (3.1%)
Mortgage Servicing Rights$17,911 Discounted Cash FlowProjected Constant Prepayment Rate,
Life (in years),
Discount Rate
7.5 to 37.4% (11.5%)
1.7 to 7.5 (6.4)
9.5 to 13.0% (9.6%)
Derivative Instruments$2,205 Sales Comparison ApproachProjected Sales Profit of Underlying Loans
0.2 to 0.5% (0.3%)
12
The significant unobservable inputs used in the fair value measurement of the Company’s residential mortgage-backed securities are projected prepayment rates, probability of default, and projected loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the projected loss severity and a directionally opposite change in the assumption used for projected prepayment rates.
The table below summarizes assets measured for impairment on a non-recurring basis:
December 31, 2021
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Balance
Other real estate owned and foreclosed assets:
Autos and RVs$— $— $251 $251 
Total$— $— $251 $251 
June 30, 2021
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Balance
Other real estate owned and foreclosed assets:
Single family real estate$— $— $6,547 $6,547 
Autos and RVs— — 235 235 
Total$— $— $6,782 $6,782 
Other real estate owned and foreclosed assets, which are measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of $251 after charge-offs of $49 for the six months ended December 31, 2021.
The Company has elected the fair value option for Agency loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of December 31, 2021 and June 30, 2021.
As of December 31, 2021 and June 30, 2021, the aggregate fair value of loans held for sale, carried at fair value, contractual balance (including accrued interest), and unrealized gain was as follows:
(Dollars in thousands)December 31, 2021June 30, 2021
Aggregate fair value$27,428 $29,768 
Contractual balance26,751 28,940 
Unrealized gain $677 $828 
The total amount of gains and losses from changes in fair value included in earnings for the period indicated below for loans held for sale were:
For the Three Months EndedFor the Six Months Ended
December 31,December 31,
(Dollars in thousands)2021202020212020
Interest income$194 $420 $394 $802 
Change in fair value(1,021)(6,425)(978)459 
Total $(827)$(6,005)$(584)$1,261 
13
The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:
December 31, 2021
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input
Range (Weighted Average) 1
Other real estate owned and foreclosed assets:
Autos and RVs$251 Sales comparison approachAdjustment for differences between the comparable sales
(16.6) to (2.0)% ((8.4)%)
June 30, 2021
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input
Range (Weighted Average) 1
Other real estate owned and foreclosed assets:
Single family real estate$6,547 Sales comparison approachAdjustment for differences between the comparable sales
(1.5) to 6.1% (2.0%)
Autos and RVs$235 Sales comparison approachAdjustment for differences between the comparable sales
(2.1) to 14.7% (2.1%)
1 For other real estate owned and foreclosed assets the ranges shown may vary positively or negatively based on the comparable sales reported in the current appraisal. In certain instances, the range can be significant due to small sample sizes and in some cases the property being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted.

14
Fair value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments at December 31, 2021 and June 30, 2021 were as follows:
December 31, 2021
Fair Value
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Total Fair Value
Financial assets:
Cash and cash equivalents$1,118,358 $1,118,358 $— $— $1,118,358 
Securities — trading1,223 — 1,223 — 1,223 
Securities — available-for-sale139,581 — 80,829 58,752 139,581 
Loans held for sale, at fair value27,428 — 27,428 — 27,428 
Loans held for sale, at lower of cost or fair value11,446 — — 11,534 11,534 
Loans held for investment—net12,607,179 — — 12,870,528 12,870,528 
Securities borrowed534,243 — — 524,466 524,466 
Customer, broker-dealer and clearing receivables429,634 — — 432,427 432,427 
Mortgage servicing rights20,110 — — 20,110 20,110 
Financial liabilities:
Total deposits12,269,172 — 11,650,460 — 11,650,460 
Advances from the Federal Home Loan Bank157,500 — 157,500 — 157,500 
Borrowings, subordinated notes and debentures260,435 — 254,096 — 254,096 
Securities loaned578,762 — — 582,640 582,640 
Customer, broker-dealer and clearing payables528,796 — — 534,712 534,712 
June 30, 2021
Fair Value
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Total Fair Value
Financial assets:
Cash and cash equivalents$1,037,777 $1,037,777 $— $— $1,037,777 
Securities — trading1,983 — 1,983 — 1,983 
Securities — available-for-sale187,335 — 119,720 67,615 187,335 
Loans held for sale, at fair value29,768 — 29,768 — 29,768 
Loans held for sale, at lower of cost or fair value12,294 — — 12,336 12,336 
Loans held for investment—net11,414,814 — — 11,833,102 11,833,102 
Securities borrowed619,088 — — 619,274 619,274 
Customer, broker-dealer and clearing receivables369,815 — — 369,815 369,815 
Mortgage servicing rights17,911 — — 17,911 17,911 
Financial liabilities:
Total deposits10,815,797 — 10,297,450 — 10,297,450 
Advances from the Federal Home Loan Bank353,500 — 353,500 — 353,500 
Borrowings, subordinated notes and debentures221,358 — 210,196 — 210,196 
Securities loaned728,988 — — 731,467 731,467 
Customer, broker-dealer and clearing payables535,425 — — 535,425 535,425 
15
The methods and assumptions, not previously presented, used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans, deposits, borrowings or subordinated debt and for variable rate loans, deposits, borrowings or subordinated debt with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. A discussion of the methods of valuing trading securities, available for sale securities and loans held for sale can be found in Note 3 – “Fair Value” of our Form 10-K for the year ended June 30, 2021. The carrying amount of stock of regulatory agencies approximates the estimated fair value of this investment. The fair value of off-balance sheet items is not considered material.
4.     SECURITIES
The amortized cost, carrying amount and fair value for the trading and available-for-sale securities at December 31, 2021 and June 30, 2021 were:
December 31, 2021
TradingAvailable-for-sale
(Dollars in thousands)Fair
Value		Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
Mortgage-backed securities (MBS):
U.S. agencies1
$— $29,376 $214 $(359)$29,231 
Non-agency2
— 56,949 2,152 (349)58,752 
Total mortgage-backed securities— 86,325 2,366 (708)87,983 
Non-MBS:
Municipal1,223 3,467 69 — 3,536 
Asset-backed securities and structured notes— 46,933 1,129 — 48,062 
Total Non-MBS1,223 50,400 1,198 — 51,598 
Total debt securities$1,223 $136,725 $3,564 $(708)$139,581 
June 30, 2021
TradingAvailable-for-sale
(Dollars in thousands)Fair
Value		Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
Mortgage-backed securities (MBS):
U.S. agencies1
$— $23,639 $420 $(146)$23,913 
Non-agency2
— 65,174 2,862 (421)67,615 
Total mortgage-backed securities— 88,813 3,282 (567)91,528 
Non-MBS:
Municipal1,983 3,466 99 — 3,565 
Asset-backed securities and structured notes— 90,549 1,693 — 92,242 
Total Non-MBS1,983 94,015 1,792 — 95,807 
Total debt securities$1,983 $182,828 $5,074 $(567)$187,335 
1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
2Private sponsors of securities collateralized primarily by first-lien mortgage loans on commercial properties or by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option ARM mortgages.

The Company’s non-agency MBS available-for-sale portfolio with a total fair value of $58,752 at December 31, 2021 consists of 14 different issues of super senior securities.
The face amounts of debt securities available-for-sale that were pledged to secure borrowings at December 31, 2021 and June 30, 2021 were $1.2 million and $1.4 million, respectively.
16
The securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:
December 31, 2021
Available-for-sale securities in loss position for
Less Than
12 Months		More Than
12 Months		Total
(Dollars in thousands)Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
MBS:
U.S. agencies$20,136 $(351)$366 $(8)$20,502 $(359)
Non-agency— — 5,353 (349)5,353 (349)
Total MBS20,136 (351)5,719 (357)25,855 (708)
Non-MBS:
U.S. agencies— — — — — — 
Total Non-MBS— — — — — — 
Total debt securities$20,136 $(351)$5,719 $(357)$25,855 $(708)
June 30, 2021
Available-for-sale securities in loss position for
Less Than
12 Months		More Than
12 Months		Total
(Dollars in thousands)Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
MBS:
U.S. agencies$10,001 $(146)$— $— $10,001 $(146)
Non-agency— — 6,018 (421)6,018 (421)
Total MBS10,001 (146)6,018 (421)16,019 (567)
Non-MBS:
Municipal debt— — — — — — 
Asset-backed securities and structured notes— — — — — — 
Total Non-MBS— — — — — — 
Total debt securities$10,001 $(146)$6,018 $(421)$16,019 $(567)
On December 31, 2021, there were eight securities in a continuous loss position for a period of more than 12 months, and eleven securities in a continuous loss position for a period of less than 12 months. At June 30, 2021, there were seven securities in a continuous loss position for a period of more than 12 months, and seven securities in a continuous loss position for a period of less than 12 months.
At December 31, 2021, one non-agency RMBS with a total carrying amount of $2.6 million was determined to have cumulative credit losses of $0.8 million of which none was recognized in earnings during the three months ended December 31, 2021.
During the six months ended December 31, 2020, the company sold no available-for-sale securities. During the six months ended December 31, 2021, the company sold no available-for-sale securities.
The Company had recorded unrealized gains and unrealized losses in accumulated other comprehensive loss as follows:
(Dollars in thousands)December 31,
2021		June 30,
2021
Available-for-sale debt securities—net unrealized gains (losses)$2,856 $4,507 
Available-for-sale debt securities—non-credit related losses(845)(845)
Subtotal2,011 3,662 
Tax benefit (expense)(667)(1,155)
Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss)$1,344 $2,507 


17
5.    LOANS & ALLOWANCE FOR CREDIT LOSSES
The following table sets forth the composition of the loan portfolio as of the dates indicated:
(Dollars in thousands)December 31, 2021June 30, 2021
Single Family - Mortgage & Warehouse$4,281,646 $4,359,472 
Multifamily and Commercial Mortgage2,483,932 2,470,454 
Commercial Real Estate3,857,367 3,180,453 
Commercial & Industrial - Non-RE1,631,811 1,123,869 
Auto & Consumer478,636 362,180 
Other22,282 58,316 
Total gross loans12,755,674 11,554,744 
Allowance for credit losses - loans(140,489)(132,958)
Unaccreted premiums (discounts) and loan fees(8,006)(6,972)
Total net loans$12,607,179 $11,414,814 

18
The following tables summarize activity in the allowance for credit losses - loans by portfolio classes for the periods indicated.
For the Three Months Ended December 31, 2021
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Balance at October 1, 2021$25,329 $13,359 $65,223 $22,519 $10,007 $341 $136,778 
Provision (benefit) for credit losses - loans182 269 2,358 170 1,299 (278)4,000 
Charge-offs— — — — (640)— (640)
Recoveries69 — — 27 255 — 351 
Balance at December 31, 2021$25,580 $13,628 $67,581 $22,716 $10,921 $63 $140,489 
For the Three Months Ended December 31, 2020
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Balance at October 1, 2020$28,307 $12,419 $49,198 $23,295 $8,678 $11,018 $132,915 
Provision for credit losses - loans5,271 470 7,517 (1,546)(214)(3,498)8,000 
Charge-offs(870)— — (2,620)(1,220)— (4,710)
Recoveries19 — — — 169 — 188 
Balance at December 31, 2020$32,727 $12,889 $56,715 $19,129 $7,413 $7,520 $136,393 
For the Six Months Ended December 31, 2021
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Balance at July 1, 2021$26,604 $13,146 $57,928 $28,460 $6,519 $301 $132,958 
Provision (benefit) for credit losses - loans(1,169)305 9,653 (5,476)4,925 (238)8,000 
Charge-offs— — — (322)(1,034)— (1,356)
Recoveries145 177 — 54 511 — 887 
Balance at December 31, 2021$25,580 $13,628 $67,581 $22,716 $10,921 $63 $140,489 
For the Six Months Ended December 31, 2020
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Balance at July 1, 2020$25,901 $4,718 $21,052 $9,954 $9,461 $4,721 $75,807 
Effect of Adoption of ASC 3266,318 7,408 25,893 7,042 610 29 47,300 
Provision for credit losses - loans2,832 763 9,770 4,966 (1,301)2,770 19,800 
Charge-offs(2,359)— — (2,833)(1,956)— (7,148)
Recoveries35 — — — 599 — 634 
Balance at December 31, 2020$32,727 $12,889 $56,715 $19,129 $7,413 $7,520 $136,393 
Credit Quality Disclosures. Nonaccrual loans consisted of the following as of the dates indicated:
As of December 31, 2021
(Dollars in thousands)With AllowanceWith No AllowanceTotal
Single Family - Mortgage & Warehouse$54,613 $67,713 $122,326 
Multifamily and Commercial Mortgage2,158 5,530 7,688 
Commercial Real Estate— 15,244 15,244 
Commercial & Industrial - Non-RE— — — 
Auto & Consumer504 116 620 
Other— 55 55 
     Total nonaccrual loans$57,275 $88,658 $145,933 
Nonaccrual loans to total loans1.14 %

No interest income was recognized on nonaccrual loans in either the three months ended December 31, 2021 or December 31, 2020. No interest income was recognized on nonaccrual loans in either the six months ended December 31, 2021 or December 31, 2020.
19


Approximately 0.52% of our nonaccrual loans at December 31, 2021 were considered TDRs, compared to 0.55% at June 30, 2021. Borrowers that make timely payments after TDRs are considered non-performing for at least six months. Generally, after six months of timely payments, those TDRs are reclassified from the nonaccrual loan category to the performing loan category and any previously deferred interest income is recognized. Approximately 83.82% of the Bank’s nonaccrual loans are single family first mortgages.
The following tables present the outstanding unpaid balance of loans that are performing and nonaccrual by portfolio class:
December 31, 2021
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Performing$4,159,320 $2,476,244 $3,842,123 $1,631,811 $478,016 $22,227 $12,609,741 
Nonaccrual122,326 7,688 15,244 — 620 55 145,933 
          Total$4,281,646 $2,483,932 $3,857,367 $1,631,811 $478,636 $22,282 $12,755,674 
June 30, 2021
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Performing$4,253,764 $2,450,026 $3,164,614 $1,120,927 $361,902 $58,316 $11,409,549 
Nonaccrual105,708 20,428 15,839 2,942 278 — 145,195 
          Total$4,359,472 $2,470,454 $3,180,453 $1,123,869 $362,180 $58,316 $11,554,744 

From time to time, the Company modifies loan terms temporarily for borrowers who are experiencing financial stress. These loans are performing and accruing and will generally return to the original loan terms after the modification term expires. The Company had no TDRs classified as performing loans at December 31, 2021 or June 30, 2021.


20
Credit Quality Indicators
The amortized cost basis by fiscal year of origination and credit quality indicator of the Company’s loan and leases as of December 31, 2021 was as follows:
Loans Held for Investment Origination YearRevolving Loans Total
(Dollars in thousands)20222021202020192018Prior
Single Family-Mortgage & Warehouse
Pass$754,227 $760,351 $539,496 $398,601 $358,708 $717,525 $566,340 $4,095,248 
Special Mention11,550 79 8,265 4,020 1,927 6,425 29,273 61,539 
Substandard— 962 34,659 20,155 12,967 56,116 — 124,859 
Doubtful— — — — — — — — 
Total765,777 761,392 582,420 422,776 373,602 780,066 595,613 4,281,646 
Multifamily and Commercial Mortgage
Pass286,209 621,487 509,415 308,530 254,009 417,533 — 2,397,183 
Special Mention— — — 17,162 — 2,745 — 19,907 
Substandard— 4,908 30,155 6,110 11,388 14,281 — 66,842 
Doubtful— — — — — — — — 
Total286,209 626,395 539,570 331,802 265,397 434,559 — 2,483,932 
Commercial Real Estate
Pass1,310,547 1,050,924 585,116 450,236 68,748 — 272,844 3,738,415 
Special Mention— 2,500 10,818 15,487 15,000 — — 43,805 
Substandard— — 58,205 — 15,244 — 1,698 75,147 
Doubtful— — — — — — — — 
Total1,310,547 1,053,424 654,139 465,723 98,992 — 274,542 3,857,367 
Commercial & Industrial - Non-RE
Pass118,720 52,137 82,180 14,289 15,965 817 1,312,491 1,596,599 
Special Mention— — — 224 907 — 20,654 21,785 
Substandard2,989 — 10,438 — — — — 13,427 
Doubtful— — — — — — — — 
Total121,709 52,137 92,618 14,513 16,872 817 1,333,145 1,631,811 
Auto & Consumer
Pass189,880 137,621 59,449 51,605 23,425 15,046 — 477,026 
Special Mention109 209 98 70 33 — — 519 
Substandard117 244 276 354 67 33 — 1,091 
Doubtful— — — — — — — — 
Total190,106 138,074 59,823 52,029 23,525 15,079 — 478,636 
Other
Pass1,719 10,644 7,037 — 1,538 1,289 — 22,227 
Special Mention— — — — — — — — 
Substandard— — 55 — — — — 55 
Doubtful— — — — — — — — 
Total1,719 10,644 7,092 — 1,538 1,289 — 22,282 
Total
Pass2,661,302 2,633,164 1,782,693 1,223,261 722,393 1,152,210 2,151,675 12,326,698 
Special Mention11,659 2,788 19,181 36,963 17,867 9,170 49,927 147,555 
Substandard3,106 6,114 133,788 26,619 39,666 70,430 1,698 281,421 
Doubtful— — — — — — — — 
Total$2,676,067 $2,642,066 $1,935,662 $1,286,843 $779,926 $1,231,810 $2,203,300 $12,755,674 
As a % of total gross loans and leases20.99 %20.71 %15.17 %10.09 %6.11 %9.66 %17.27 %100.0 %

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses - loans. The Company also evaluates credit quality based on the aging status of its loans and leases. During the year, the Company holds certain short-term loans that do not have a fixed maturity date that are treated as delinquent if not paid in full 90 days after the origination date.
The Company took proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. As of December 31, 2021, no loans were on forbearance status for forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less. Additionally, no forbearance or deferral of payment obligation was granted to any borrower during during the three and six months ended December 31, 2021.


21
The following tables provide the outstanding unpaid balance of loans that are past due 30 days or more by portfolio class as of the dates indicated:
December 31, 2021
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Single Family-Mortgage & Warehouse$33,015 $9,944 $108,207 $151,166 
Multifamily and Commercial Mortgage9,828 4,438 536 14,802 
Commercial Real Estate— — — — 
Commercial & Industrial - Non-RE— — — — 
Auto & Consumer4,387 1,158 645 6,190 
Other52 — 55 107 
Total$47,282 $15,540 $109,443 $172,265 
As a % of total gross loans and leases0.37 %0.12 %0.86 %1.35 %
June 30, 2021
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Single Family-Mortgage & Warehouse$24,150 $46,552 $69,169 $139,871 
Multifamily and Commercial Mortgage7,991 1,816 12,122 21,929 
Commercial Real Estate36,786 — — 36,786 
Commercial & Industrial - Non-RE— — 2,960 2,960 
Auto & Consumer601 306 235 1,142 
Other— — — — 
Total$69,528 $48,674 $84,486 $202,688 
As a % of total gross loans and leases0.60 %0.42 %0.73 %1.75 %

Allowance for Credit Losses
The allowance for credit losses is the sum of the allowance for credit losses - loans and the unfunded loan commitment liabilities. Unfunded loan commitment liabilities is included in “Accounts payable, accrued liabilities and other liabilities” in the unaudited Condensed Consolidated Balance Sheets. Provisions for the unfunded loan commitments are included in “General and administrative expenses” in the unaudited Condensed Consolidated Statements of Income.
The following tables present a summary of the activity in the allowance for credit losses for the periods indicated:
Three Months Ended December 31, 2021
(Dollars in thousands)Allowance for Credit Losses - LoansUnfunded Loan Commitment LiabilitiesTotal Allowance for Credit Losses
Balance at October 1, 2021$136,778 $7,723 $144,501 
Provision for Credit Losses4,000 1,000 5,000 
Charge-offs(640)— (640)
Recoveries351 — 351 
Balance at December 31, 2021$140,489 $8,723 $149,212 

Three Months Ended December 31, 2020
(Dollars in thousands)Allowance for Credit Losses - LoansUnfunded Loan Commitment LiabilitiesTotal Allowance for Credit Losses
Balance at October 1, 2020$132,915 $6,723 $139,638 
Provision for Credit Losses8,000 (1,000)7,000 
Charge-offs(4,710)— (4,710)
Recoveries188 — 188 
Balance at December 31, 2020$136,393 $5,723 $142,116 
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For the Six Months Ended December 31, 2021
(Dollars in thousands)Allowance for Credit Losses - LoansUnfunded Loan Commitment LiabilitiesTotal Allowance for Credit Losses
Balance at July 1, 2021$132,958 $5,723 $138,681 
Provision for Credit Losses8,000 3,000 11,000 
Charge-offs(1,356)— (1,356)
Recoveries887 — 887 
Balance at December 31, 2021$140,489 $8,723 $149,212 

For the Six Months Ended December 31, 2020
(Dollars in thousands)Allowance for Credit Losses - LoansUnfunded Loan Commitment LiabilitiesTotal Allowance for Credit Losses
Balance at July 1, 2020$75,807 $323 $76,130 
Effect of Adoption of ASC 32647,300 5,700 53,000 
Provision for Credit Losses19,800 (300)19,500 
Charge-offs(7,148)— (7,148)
Recoveries634 — 634 
Balance at December 31, 2020$136,393 $5,723 $142,116 

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6.    EQUITY AND STOCK-BASED COMPENSATION
Amended and Restated 2014 Stock Incentive Plan. On October 21, 2021 the Company’s stockholders approved the Amended and Restated 2014 Stock Incentive Plan, which reserved one million additional shares for purposes of the Company’s equity compensation.
Restricted Stock Units. During the six months ended December 31, 2021 and 2020, the Company granted 302,677 and 437,608 restricted stock unit awards (“RSUs”) to employees and directors, and during the six months ended December 31, 2021 granted 478,353 RSU’s to the chief executive officer, which vest ratably on each of the four fiscal year ends after the issue date. All other RSUs granted during these quarters generally vest over 3 years, one-third on each anniversary date.
    The Company’s pre-tax income and net income for the six months ended December 31, 2021 and 2020 include stock award expense of $8.5 million and $9.0 million, with total income tax benefit of $2.5 million and $2.7 million, respectively. The Company recognizes compensation expense based upon the grant-date fair value divided by the vesting and the service period between each vesting date. At December 31, 2021, unrecognized compensation expense related to non-vested awards aggregated to $30.4 million and is expected to be recognized in future periods as follows:
(Dollars in thousands)Stock Award
Compensation
Expense
For the fiscal year remainder:
2022$8,595 
202313,007 
20247,501 
20251,230 
2026101 
Total$30,434 

    The following table presents the status and changes in restricted stock units for the periods indicated:
Restricted
Stock Units		Weighted-Average
Grant-Date
Fair Value
Non-vested balance at June 30, 20201,445,540 $28.62 
Granted617,833 32.12 
Vested(666,790)29.23 
Forfeited(176,113)27.42 
Non-vested balance at June 30, 20211,220,470 $30.18 
Granted781,030 48.53 
Vested(307,516)28.32 
Forfeited(90,111)34.68 
Non-vested balance at December 31, 20211,603,873 $39.26 
    The total fair value of shares vested for the three and six months ended December 31, 2021 was $349 and $14,834. The total fair value of shares vested for the three and six months ended December 31, 2020 was $1,644 and $8,246.
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7.    EARNINGS PER COMMON SHARE
    Earnings per common share (“EPS”) is presented under two formats: basic EPS and diluted EPS. Basic EPS is computed by dividing the net income attributable to common stock (net income after deducting dividends on preferred stock and preferred stock redemption charge) by the sum of the weighted-average number of common shares outstanding during the year and the unvested average of participating RSUs. Diluted EPS is computed by dividing the sum of net income attributable to common stock and dividends on diluted preferred stock by the sum of the weighted-average number of common shares outstanding during the year and the impact of dilutive potential common shares, such as nonparticipating RSUs, stock options and convertible preferred stock.
    The unvested stock-based compensation awards issued under the Amended and Restated 2014 Stock Incentive Plan have no stockholder rights, meaning they are not entitled to dividends and are considered nonparticipating. The Company does not include these nonparticipating RSUs in the basic EPS calculation, but are included in the diluted EPS calculation using the treasury stock method.
The following table presents the calculation of basic and diluted EPS:
Three Months EndedSix Months Ended
December 31,December 31,
(Dollars in thousands, except per share data)2021202020212020
Earnings Per Common Share
Net income$60,787 $54,785 $120,997 $107,807 
Preferred stock dividends— (26)— (103)
Preferred stock redemption charge— (87)— (87)
Net income attributable to common stockholders$60,787 $54,672 $120,997 $107,617 
Average common shares outstanding59,496,489 59,049,697 59,443,667 59,278,672 
Total qualifying shares59,496,489 59,049,697 59,443,667 59,278,672 
Earnings per common share$1.02 $0.93 $2.04 $1.82 
Diluted Earnings Per Common Share
Net income attributable to common stockholders$60,787 $54,672 $120,997 $107,617 
Average common shares issued and outstanding59,496,489 59,049,697 59,443,667 59,278,672 
Dilutive effect of average unvested RSUs1,259,492 991,026 1,305,716 917,844 
Total dilutive common shares outstanding60,755,981 60,040,723 60,749,383 60,196,516 
Diluted earnings per common share$1.00 $0.91 $1.99 $1.79 

8.    COMMITMENTS AND CONTINGENCIES
COVID-19 Impact. The Company has closely monitored the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, the Company continues to take the necessary and appropriate actions to support customers, employees, partners and shareholders.
The Company took proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. As of December 31, 2021, no loans were on forbearance status for a forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less.
The Company will continue to monitor uncertainties caused by and developments of COVID-19.
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Operating Leases. The Company leases office space under operating lease agreements scheduled to expire at various dates. The following table represents maturities of lease liabilities as of December 31, 2021 in the corresponding fiscal years:
(Dollars in thousands)
Remainder of 2022$4,992 
202310,595 
202410,287 
202510,119 
20269,791 
Thereafter38,821 
Total lease payments84,605 
Less: amount representing interest(9,197)
Total Lease Liability$75,408 

Credit-Related Financial Instruments. The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the unaudited condensed consolidated balance sheets.
The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.
At December 31, 2021, the Company had commitments to originate $137.8 million in fixed rate loans and $2,345.2 million in variable rate loans, totaling an aggregate outstanding principal balance of $2,483.0 million. At December 31, 2021, the Company’s fixed rate commitments to originate had a weighted-average rate of 4.38%. At December 31, 2021, the Company also had commitments to sell $50.0 million in fixed rate loans and none in variable rate loans, totaling an aggregate outstanding principal balance of $50.0 million.
Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.
In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
Litigation. On October 15, 2015, the Company, its Chief Executive Officer and its then Chief Financial Officer were named defendants in a putative class action lawsuit styled Golden v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Golden Case”). On November 3, 2015, the Company, its Chief Executive Officer and its then Chief Financial Officer were named defendants in a second putative class action lawsuit styled Hazan v. BofI Holding, Inc., et al, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as In re BofI Holding, Inc. Securities Litigation, Case #: 3:15-cv-02324-GPC-KSC (the “Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The plaintiffs allege that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. On March 21, 2018, the Court entered a final order dismissing the Class Action with prejudice. Subsequently, the plaintiff appealed, the Court overturned the dismissal and the Company is preparing a petition for a rehearing.
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On April 3, 2017, the Company, its Chief Executive Officer and its then Chief Financial Officer were named defendants in a putative class action lawsuit styled Mandalevy v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Mandalevy Case”). The Mandalevy Case seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The complaint in the Mandalevy Case (the “Mandalevy Complaint”) alleges a class period that differs from that alleged in the First Class Action, and that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a March 2017 media article. The Mandalevy Case has not been consolidated into the First Class Action. On December 7, 2018, the Court entered a final order granting the defendants’ motion and dismissing the Mandalevy Case with prejudice. Subsequently, the plaintiff filed a notice of appeal and the Court took the matter under advisement. On November 3, 2020, the Court issued a ruling affirming in part and reversing in part the District Court's Order dismissing the Class Action Second Amended Complaint. The defendants filed a petition for rehearing en banc on November 17, 2020, which petition was denied on December 16, 2020. The defendants filed a motion to dismiss the remanded complaint on February 19, 2021.
The Company and the other named defendants dispute the allegations of wrongdoing advanced by the plaintiffs in the Class Action, the Mandalevy Case, and in the Employment Matter, as well as those plaintiffs’ statement of the underlying factual circumstances, and are vigorously defending each case.
In addition to the First Class Action and the Mandalevy Case, two separate shareholder derivative actions were filed in December, 2015, purportedly on behalf of the Company. The first derivative action, Calcaterra v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on December 3, 2015. The second derivative action, Dow v. Micheletti, et al, was filed in the San Diego County Superior Court on December 16, 2015. A third derivative action, DeYoung v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 22, 2016, a fourth derivative action, Yong v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 29, 2016, a fifth derivative action, Laborers Pension Trust Fund of Northern Nevada v. Allrich et al, was filed in the United States District Court for the Southern District of California on February 2, 2016, and a sixth derivative action, Garner v. Garrabrants, et al, was filed in the San Diego County Superior Court on August 10, 2017. Each of these six derivative actions names the Company as a nominal defendant, and certain of its officers and directors as defendants. Each complaint sets forth allegations of breaches of fiduciary duties, gross mismanagement, abuse of control, and unjust enrichment against the defendant officers and directors. The plaintiffs in these derivative actions seek damages in unspecified amounts on the Company’s behalf from the officer and director defendants, certain corporate governance actions, and an award of their costs and attorney’s fees.
The United States District Court for the Southern District of California ordered the four above-referenced derivative actions pending before it to be consolidated and appointed lead counsel in the consolidated action. On June 7, 2018, the Court entered an order granting defendant’s motion for judgment on the pleadings, but giving the plaintiffs limited leave to amend by June 28, 2018. The plaintiffs failed to file an amended complaint, and instead plaintiffs filed on June 28, 2018 a motion to stay the case pending resolution of the securities class action and Employment Matter. On August 10, 2018, defendants filed an opposition to plaintiffs’ motion. On September 11, 2018, the plaintiffs filed a second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. The Court dismissed the second amended complaint with prejudice on May 23, 2019. Subsequently, the plaintiff filed a notice of appeal and opening brief and the Company filed its answering brief. Oral argument was held September 2, 2020 and the Court took the matter under advisement.
The two derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.
In view of the inherent difficulty of predicting the outcome of each legal action, particularly since claimants seek substantial or indeterminate damages, it is not possible to reasonably predict or estimate the eventual loss or range of loss, if any, related to each legal action.
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9.    SEGMENT REPORTING
There are no material inter-segment sales or transfers. The accounting policies used by each reportable segment are the same as those discussed in Note 1 - “Organizations and Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended June 30, 2021. All costs, except certain corporate administration costs and income taxes, have been allocated to the reportable segments. Therefore, combined amounts agree to the unaudited condensed consolidated totals. In order to reconcile the two segments to the unaudited condensed consolidated totals, the Company includes parent-only activities and intercompany eliminations. The following tables present the operating results, goodwill, and assets of the segments:
For the Three Months Ended December 31, 2021
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$142,259 $4,506 $(1,197)$145,568 
Provision for credit losses4,000 — — 4,000 
Non-interest income16,295 16,454 (1,962)30,787 
Non-interest expense62,449 21,654 1,916 86,019 
Income before taxes$92,105 $(694)$(5,075)$86,336 
For the Three Months Ended December 31, 2020
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$132,166 $4,260 $(2,334)$134,092 
Provision for credit losses8,000 — — 8,000 
Non-interest income22,295 6,572 (149)28,718 
Non-interest expense62,474 11,312 2,511 76,297 
Income before taxes$83,987 $(480)$(4,994)$78,513 
Six Months Ended December 31, 2021
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$284,500 $10,682 $(2,972)$292,210 
Provision for credit losses8,000 — — 8,000 
Non-interest income31,123 29,560 (3,194)57,489 
Non-interest expense125,174 40,927 4,349 170,450 
Income before taxes$182,449 $(685)$(10,515)$171,249 
Six Months Ended December 31, 2020
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$255,174 $9,154 $(2,909)$261,419 
Provision for credit losses19,800 — — 19,800 
Non-interest income52,507 12,356 (290)64,573 
Non-interest expense123,691 22,664 5,488 151,843 
Income before taxes$164,190 $(1,154)$(8,687)$154,349 




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As of December 31, 2021
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Goodwill$35,721 $59,953 $— $95,674 
Total Assets$14,047,081 $1,439,415 $61,451 $15,547,947 
As of June 30, 2021
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Goodwill$35,721 $35,501 $— $71,222 
Total Assets$12,745,029 $1,450,512 $70,024 $14,265,565 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the results of operations, financial condition, liquidity, off balance sheet items and capital resources of Axos Financial, Inc. and subsidiaries (collectively, “we”, “us” or the “Company”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our financial information in our Annual Report on Form 10-K for the year ended June 30, 2021, and the interim unaudited condensed consolidated financial statements and notes thereto contained in this report.
Some matters discussed in this report may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties. These forward-looking statements can be identified by the use of terminology such as “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” “will,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements relate to, among other things, the effects on our business of the current novel coronavirus pandemic (“COVID-19”), the Company’s financial prospects and other projections of its performance and asset quality, our ability to continue to grow profitably and increase its business, our ability to continue to diversify lending and deposit franchises, and the anticipated timing and financial performance of other offerings, initiatives, and acquisitions, expectations of the environment in which we operate and projections of future performance. Forward-looking statements are inherently unreliable and actual results may vary. Factors that could cause actual results to differ from these forward-looking statements include uncertainties surrounding the severity, duration, and effects of the COVID-19 pandemic, our ability to successfully integrate acquisitions and realize the anticipated benefits of the transactions, changes in the interest rate environment, inflation, government regulation, general economic conditions, changes in the competitive marketplace, conditions in the real estate markets in which we operate, risks associated with credit quality, the outcome and effects of pending class action litigation filed against the Company and other risk factors discussed under the heading “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 and in our Annual Report on Form 10-K for the year ended June 30, 2021, which has been filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements made in connection with this report, which are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing information.
General
Our Company, the holding company for Axos Bank (the “Bank”), is a diversified financial services company with approximately $15.5 billion in assets that provides consumer and business banking products through its online, low-cost distribution channels and affinity partners. Our Bank has deposit and loan customers nationwide including consumer and business checking, savings and time deposit accounts and financing for single family and multifamily residential properties, small-to-medium size businesses in target sectors, and automobiles. Our Bank generates fee income from consumer and business products including fees from loans originated for sale and transaction fees earned from processing payment activity. Our securities products and services are offered through Axos Clearing LLC (“Axos Clearing”) and its business division Axos Advisor Services (“AAS”), formerly E*TRADE Advisor Services, and Axos Invest, Inc. (“Axos Invest”), which generate interest and fee income by providing comprehensive securities clearing and custody services to introducing broker-dealers and registered investment advisor correspondents and digital investment advisory services to retail investors, respectively. Axos Financial, Inc.’s common stock is listed on the New York Stock Exchange and is a component of the Russell 2000® Index, the KBW Nasdaq Financial Technology Index, the S&P SmallCap 600® Index, the KBW Nasdaq Financial Technology Index, and the Travillian Tech-Forward Bank Index.
Our Bank is a federal savings bank wholly-owned by our Company and regulated by the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (“FDIC”) as its deposit insurer. The Bank must file reports with the OCC and the FDIC concerning its activities and financial condition. As a depository institution with more than $10 billion in assets, our Bank and our affiliates are subject to direct supervision by the Consumer Financial Protection Bureau.
Axos Clearing is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority, Inc. (“FINRA”). Axos Invest is a Registered Investment Advisor under the Investment Advisers Act of 1940, that is registered with the SEC, and Axos Invest LLC is an introducing broker-dealer that is registered with the SEC and FINRA.

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Segment Information
The Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. We operate through two segments: Banking Business and Securities Business.
Banking Business. The Banking Business includes a broad range of banking services including online banking, concierge banking, and mortgage, vehicle and unsecured lending through online and telephonic distribution channels to serve the needs of consumer and small businesses nationally. Our deposit products consist of demand, savings, money market and time deposit accounts. In addition, the Banking Business focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), cash management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients. The Banking Business also includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries.
We distribute our loan products through our retail, correspondent and wholesale channels, and the loans we retain are primarily first mortgages secured by single family real property and by multifamily real property as well as commercial & industrial loans to businesses. Our investment securities consist of agency and non-agency mortgage-backed securities, municipal securities and other non-agency debt securities. We believe our flexibility to adjust our asset generation channels has been a competitive advantage allowing us to avoid markets and products where credit fundamentals are poor or risks and rewards are not sufficient to support our required return on equity.
Securities Business. The Securities Business includes the Clearing Broker-Dealer, Registered Investment Advisor custody business, Registered Investment Advisor, and Introducing Broker-Dealer lines of businesses. These lines of business offer products independently to their own customers as well as to Banking Business clients. The products offered by the lines of business in the Securities Business primarily generate net interest income and non-banking service fee income.
Securities services includes fully disclosed clearing services through Axos Clearing to FINRA- and SEC-registered member firms for trade execution and clearance as well as back-office services such as record keeping, trade and performance reporting, accounting, general back-office support, securities and margin lending, reorganization assistance and custody of securities. We provide financing to our brokerage customers for their securities trading activities through margin loans that are collateralized by securities, cash, or other acceptable collateral. Securities lending activities include borrowing and lending securities with other broker-dealers. These activities involve borrowing securities to cover short sales and to complete transactions in which clients have failed to deliver securities by the required settlement date, and lending securities to other broker dealers for similar purposes.
Through the RIA custody business, we provide a proprietary, turnkey technology platform for custody services for our RIA customers. This platform provides fee income and service that complement our securities business products, while also generating low cost core deposits.
Axos Invest includes our digital wealth management business, which provides our retail customers with self-directed trading and investment management services through a comprehensive and flexible technology platform.
Segment results are compiled based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions or in accordance with generally accepted accounting principles.
The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material inter-segment sales or transfers. Certain corporate administration costs and income taxes have not been allocated to the reportable segments. Therefore, in order to reconcile the two segments to the unaudited condensed consolidated totals, we include parent-only activities and intercompany eliminations.
COVID-19 Impact
The Company has closely monitored the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, the Company continues to take the necessary and appropriate actions to support customers, employees, partners and shareholders.
The Company took proactive measures to manage loans that became delinquent during the economic downturn as a result of the COVID-19 pandemic. As of December 31, 2021, no loans were on forbearance status for a forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less.
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The Company will continue to monitor uncertainties caused by and developments of COVID-19.
Mergers and Acquisitions
From time to time we undertake acquisitions or similar transactions consistent with our Company’s operating and growth strategies. On August 2, 2021 Axos Clearing, LLC, acquired certain assets and liabilities of E*TRADE Advisor Services (“EAS”), the registered investment advisor custody business of Morgan Stanley. This business was rebranded as Axos Advisors Services (“AAS”). AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low-cost deposits that can be used to generate fee income from other bank partners or to fund loan growth at Axos Bank. The purchase price of $54.8 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments.
The acquisition is accounted for as a business combination under the acquisition method of accounting. Accordingly, tangible and intangible assets acquired (and liabilities assumed) are recorded at their estimated fair values as of the date of acquisition. The Company allocated the purchase price to the tangible and intangible assets acquired based on information available through December 31, 2021.
Critical Accounting Policies
The following discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.
Our significant accounting policies and practices are described in greater detail in Note 1 - “Summary of Significant Accounting Policies” and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2021.
USE OF NON-GAAP FINANCIAL MEASURES
In addition to the results presented in accordance with GAAP, this report includes the non-GAAP financial measures adjusted earnings, adjusted earnings per common share, and tangible book value per common share. Non-GAAP financial measures have inherent limitations, may not be comparable to similarly titled measures used by other companies and are not audited. Readers should be aware of these limitations and should be cautious as to their reliance on such measures. Although we believe the non-GAAP financial measures disclosed in this report enhance investors’ understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.
We define “adjusted earnings”, a non-GAAP financial measure, as net income without the after-tax impact of non-recurring acquisition-related costs (including amortization of intangible assets related to acquisitions), and other costs (unusual or non-recurring charges). Adjusted earnings per diluted common share (“adjusted EPS”), a non-GAAP financial measure, is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period. We believe the non-GAAP measures of adjusted earnings and adjusted EPS provide useful information about the Company’s operating performance. We believe excluding the non-recurring acquisition related costs, and other costs (unusual or non-recurring charges) provides investors with an alternative understanding of Axos’ business without these non-recurring costs.
32
Below is a reconciliation of net income, the nearest compatible GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown:
Three Months EndedSix Months Ended
December 31,December 31,
(Dollars in thousands, except per share amounts)2021202020212020
Net income$60,787 $54,785 $120,997 $107,807 
Acquisition-related costs
3,026 2,552 5,872 5,154 
Tax effects of adjustments(896)(771)(1,723)(1,554)
Adjusted earnings (Non-GAAP)$62,917 $56,566 $125,146 $111,407 
Adjusted EPS (Non-GAAP)$1.04 $0.94 $2.06 $1.85 

    We define “tangible book value”, a non-GAAP financial measure, as book value adjusted for goodwill and other intangible assets. Tangible book value is calculated using common stockholders’ equity minus mortgage servicing rights, goodwill and other intangible assets. Tangible book value per common share, a non-GAAP financial measure, is calculated by dividing tangible book value by the common shares outstanding at the end of the period. We believe tangible book value per common share is useful in evaluating the Company’s capital strength, financial condition, and ability to manage potential losses.
Below is a reconciliation of total stockholders’ equity, the nearest compatible GAAP measure, to tangible book value (Non-GAAP) as of the dates indicated:
December 31,
(Dollars in thousands)20212020
Common stockholders’ equity$1,523,157 $1,287,482 
Less: mortgage servicing rights, carried at fair value20,110 14,314 
Less: goodwill and other intangible assets161,954 120,644 
Tangible common stockholders’ equity (Non-GAAP)$1,341,093 $1,152,524 
Common shares outstanding at end of period59,498,575 59,072,822 
Tangible book value per common share (Non-GAAP)$22.54 $19.51 
33
SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data concerning the periods indicated:
AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands)December 31,
2021		June 30,
2021		December 31,
2020
Selected Balance Sheet Data:
Total assets$15,547,947 $14,265,565 $14,393,267 
Loans—net of allowance for credit losses12,607,179 11,414,814 11,609,584 
Loans held for sale, carried at fair value27,428 29,768 64,287 
Loans held for sale, lower of cost or fair value11,446 12,294 13,769 
Allowance for credit losses - loans140,489 132,958 136,393 
Securities—trading1,223 1,983 362 
Securities—available-for-sale139,581 187,335 209,828 
Securities borrowed534,243 619,088 317,571 
Customer, broker-dealer and clearing receivables429,634 369,815 264,572 
Total deposits12,269,172 10,815,797 11,463,136 
Advances from the FHLB157,500 353,500 182,500 
Borrowings, subordinated notes and debentures
260,435 221,358 418,480 
Securities loaned578,762 728,988 362,170 
Customer, broker-dealer and clearing payables528,796 535,425 475,473 
Total stockholders’ equity1,523,157 1,400,936 1,287,482 
Capital Ratios:
Equity to assets at end of period9.80 %9.82 %8.95 %
Axos Financial, Inc.:
Tier 1 leverage (core) capital to adjusted average assets9.42 %8.82 %8.68 %
Common equity tier 1 capital (to risk-weighted assets)10.08 %11.36 %10.85 %
Tier 1 capital (to risk-weighted assets)10.08 %11.36 %10.85 %
Total capital (to risk-weighted assets)12.16 %13.78 %13.88 %
Axos Bank:
Tier 1 leverage (core) capital to adjusted average assets10.13 %9.45 %9.08 %
Common equity tier 1 capital (to risk-weighted assets)10.91 %12.28 %11.45 %
Tier 1 capital (to risk-weighted assets)10.91 %12.28 %11.45 %
Total capital (to risk-weighted assets)11.73 %13.21 %12.44 %
Axos Clearing, LLC:
Net capital$39,453 $35,950 34,417 
Excess capital$32,171 $27,904 28,941 
Net capital as a percentage of aggregate debit items10.84 %8.94 %12.57 %
Net capital in excess of 5% aggregate debit items$21,249 $15,836 20,726 



34
AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
At or for the Three Months EndedAt or for the Six Months Ended
December 31,December 31,
(Dollars in thousands, except per share data)2021202020212020
Selected Income Statement Data:
Interest and dividend income$157,076 $155,379 $315,386 $305,268 
Interest expense11,508 21,287 23,176 43,849 
Net interest income145,568 134,092 292,210 261,419 
Provision for credit losses4,000 8,000 8,000 19,800 
Net interest income after provision for credit losses141,568 126,092 284,210 241,619 
Non-interest income30,787 28,718 57,489 64,573 
Non-interest expense86,019 76,297 170,450 151,843 
Income before income tax expense86,336 78,513 171,249 154,349 
Income tax expense25,549 23,728 50,252 46,542 
Net income$60,787 $54,785 $120,997 $107,807 
Net income attributable to common stock$60,787 $54,672 $120,997 $107,617 
Per Common Share Data:
Net income:
Basic$1.02 $0.93 $2.04 $1.82 
Diluted$1.00 $0.91 $1.99 $1.79 
Adjusted earnings (Non-GAAP)
$1.04 $0.94 $2.06 $1.85 
Book value$25.60 $21.79 $25.60 $21.79 
Tangible book value (Non-GAAP)$22.54 $19.51 $22.54 $19.51 
Weighted average number of common shares outstanding:
     Basic59,496,489 59,049,697 59,443,667 59,278,672 
     Diluted60,755,981 60,040,723 60,749,383 60,196,516 
Common shares outstanding at end of period59,498,575 59,072,822 59,498,575 59,072,822 
Common shares issued at end of period68,376,837 67,668,664 68,376,837 67,668,664 
Performance Ratios and Other Data:
Loan originations for investment$2,525,871 $1,909,978 $4,618,150 $3,240,790 
Loan originations for sale$193,320 $490,261 $403,287 $931,065 
Return on average assets1.63 %1.57 %1.65 %1.56 %
Return on average common stockholders’ equity16.29 %17.30 %16.51 %17.21 %
Interest rate spread1
3.90 %3.71 %3.97 %3.67 %
Net interest margin2
4.10 %3.94 %4.16 %3.89 %
Net interest margin2 – Banking Business Segment
4.30 %4.11 %4.39 %4.01 %
Efficiency ratio3
48.78 %46.86 %48.74 %46.58 %
Efficiency ratio3 – Banking Business Segment
39.39 %40.45 %39.66 %40.20 %
Asset Quality Ratios:
Net annualized charge-offs to average loans0.01 %0.16 %0.01 %0.12 %
Non-performing loans to total loans1.14 %1.44 %1.14 %1.44 %
Non-performing assets to total assets0.94 %1.22 %0.94 %1.22 %
Allowance for credit losses - loans to total loans held for investment at end of period1.10 %1.16 %1.10 %1.16 %
Allowance for credit losses - loans to non-performing loans96.27 %80.58 %96.27 %80.58 %
1     Interest rate spread represents the difference between the annualized weighted average yield on interest-earning assets and the annualized weighted average
rate paid on interest-bearing liabilities.
2    Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
3 Efficiency ratio represents non-interest expense as a percentage of the aggregate of net interest income and non-interest income.
35
RESULTS OF OPERATIONS
Comparison of the Three and Six Months Ended December 31, 2021 and 2020
For the three months ended December 31, 2021, we had net income of $60.8 million compared to net income of $54.8 million for the three months ended December 31, 2020. Net income attributable to common stockholders was $60.8 million or $1.00 per diluted share for the three months ended December 31, 2021 compared to net income attributable to common shareholders of $54.7 million, or $0.91 per diluted share for the three months ended December 31, 2020. For the six months ended December 31, 2021, we had net income of $121.0 million compared to net income of $107.8 million for the six months ended December 31, 2020. Net income attributable to common stockholders was $121.0 million, or $1.99 per diluted share for the six months ended December 31, 2021 compared to net income attributable to common shareholders of $107.6 million, or $1.79 per diluted share for the six months ended December 31, 2020.
Adjusted earnings and adjusted EPS, non-GAAP measures, which exclude non-recurring costs related to mergers and acquisitions (including amortization of intangible assets related to acquisitions), increased 11.2% to $62.9 million and 10.6% to $1.04, respectively, for the quarter ended December 31, 2021 compared to $56.6 million and $0.94, respectively, for the quarter ended December 31, 2020. Adjusted earnings and adjusted EPS increased 12.3% to $125.1 million and 11.4% to $2.06, respectively, for the six months ended December 31, 2021 compared to $111.4 million and $1.85, respectively, for the six months ended December 31, 2020.
Net Interest Income
Net interest income for the three and six months ended December 31, 2021 totaled $145.6 million and $292.2 million, an increase of 8.6% and 11.8%, compared to net interest income of $134.1 million and $261.4 million for the three and six months ended December 31, 2020, respectively. The increase for the three and six months were primarily due to increased average earnings assets from net loan portfolio growth and reduced rates paid on interest-bearing demand and savings deposits and time deposits, partially offset by reduced yields on interest earning assets. During the three and six months ended December 31, 2021, average non-interest bearing deposits increased $1,695.0 million and $1,460.0 million, respectively, primarily from the deposits acquired through the acquisition of AAS.
Total interest and dividend income during the three and six months ended December 31, 2021 increased 1.1% to $157.1 million and 3.3% to $315.4 million, compared to $155.4 million and $305.3 million during the three and six months ended December 31, 2020, respectively. The increase in interest and dividend income for the three and six months ended December 31, 2021 was primarily attributable to the growth in average earning assets from loan originations and securities borrowed and margin lending, partially offset by reduced yields on loans and securities borrowed and margin lending. The average balance of loans and securities borrowed increased by 6.2% and 41.1%, respectively, for the three months ended December 31, 2021 compared to the three months ended December 31, 2020. The average balance of loans and securities borrowed increased by 6.9% and 62.9%, respectively, for the six months ended December 31, 2021 compared to the six months ended December 31, 2020.
Total interest expense was $11.5 million for the three months ended December 31, 2021, a decrease of $9.8 million or 45.9% as compared with the three months ended December 31, 2020. Total interest expense was $23.2 million for the six months ended December 31, 2021, a decrease of $20.7 million or 47.1% as compared with the six months ended December 31, 2020. The decrease in the average cost of funds rate for the three months ended December 31, 2021 compared to 2020 was primarily due to 19 basis point decrease on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the industry and a 66 basis point decrease in the three month average rates paid on time deposits, due to higher rate time deposits maturing. The decrease in the average cost of funds rate for the six months ended December 31, 2021 compared to 2020 was primarily due to a 24 basis point decrease on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the industry and a 75 basis point decrease in the six month average rates paid on time deposits, due to higher rate time deposits maturing. During the three and six months ended December 31, 2021, average non-interest bearing deposits increased $1,695.0 million and $1,460.0 million, respectively, primarily from the deposits acquired through the acquisition of AAS.
Net interest margin, defined as annualized net interest income divided by average earning assets, increased 16 basis points to 4.10% for the three months ended December 31, 2021 from 3.94% for the three months ended December 31, 2020, and increased 27 basis points to 4.16% for the six months ended December 31, 2021 from 3.89% for the six months ended December 31, 2020. During the three and six months ended December 31, 2021, the primary contributors to the 16 and 27 basis point increases, respectively, was the increase in non-interest bearing deposits increased $1,695.0 million and $1,460.0 million, respectively, primarily from the deposits acquired through the acquisition of AAS and decreased rates on interest-bearing deposits.
36
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin:
 For the Three Months Ended
December 31,
 20212020
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans3, 4
$12,116,565 $149,469 4.93 %$11,409,942 $147,085 5.16 %
Interest-earning deposits in other financial institutions1,247,675 642 0.21 %1,495,760 493 0.13 %
Mortgage-backed and other investment securities4
139,711 1,338 3.83 %202,363 2,917 5.77 %
Securities borrowed and margin lending5
686,920 5,366 3.12 %486,692 4,666 3.83 %
Stock of the regulatory agencies20,519 261 5.11 %20,611 218 4.23 %
Total interest-earning assets14,211,390 157,076 4.42 %13,615,368 155,379 4.56 %
Non-interest-earning assets676,030 363,373 
Total assets$14,887,420 $13,978,741 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$6,587,348 $4,299 0.26 %$7,215,813 $8,131 0.45 %
Time deposits1,333,848 3,506 1.05 %1,860,058 7,964 1.71 %
Securities loaned439,035 218 0.20 %305,900 255 0.33 %
Advances from the FHLB272,033 973 1.43 %234,649 1,326 2.26 %
Borrowings, subordinated notes and debentures262,781 2,512 3.82 %429,833 3,611 3.36 %
Total interest-bearing liabilities8,895,045 11,508 0.52 %10,046,253 21,287 0.85 %
Non-interest-bearing demand deposits3,734,029 2,039,064 
Other non-interest-bearing liabilities765,946 624,220 
Stockholders’ equity1,492,400 1,269,204 
Total liabilities and stockholders’ equity$14,887,420 $13,978,741 
Net interest income$145,568 $134,092 
Interest rate spread6
3.90 %3.71 %
Net interest margin7
4.10 %3.94 %
1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant Loans include average balances of $26.5 million and $27.3 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 three-month periods, respectively.
5Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets.
6Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
7Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.



37

Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin:
 For the Six Months Ended
December 31,
 20212020
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans3, 4
$11,889,439 $298,645 5.02 %$11,125,812 $288,509 5.19 %
Interest-earning deposits in other financial institutions1,205,409 1,233 0.20 %1,601,170 1,000 0.12 %
Mortgage-backed and other investment securities4
148,000 2,759 3.73 %196,270 5,594 5.70 %
Securities borrowed and margin lending5
795,231 12,217 3.07 %488,129 9,743 3.99 %
Stock of the regulatory agencies20,607 532 5.17 %20,610 422 4.10 %
Total interest-earning assets14,058,686 315,386 4.49 %13,431,991 305,268 4.55 %
Non-interest-earning assets587,794 363,165 
Total assets$14,646,480 $13,795,156 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$6,568,907 $7,866 0.24 %$7,134,068 $17,222 0.48 %
Time deposits1,348,454 7,651 1.13 %1,959,299 18,427 1.88 %
Securities loaned549,538 469 0.17 %304,251 379 0.25 %
Advances from the FHLB283,717 1,989 1.40 %238,574 2,698 2.26 %
Borrowings, subordinated notes and debentures249,170 5,201 4.17 %343,198 5,123 2.99 %
Total interest-bearing liabilities8,999,786 23,176 0.52 %9,979,390 43,849 0.88 %
Non-interest-bearing demand deposits3,431,150 1,971,139 
Other non-interest-bearing liabilities749,781 593,835 
Stockholders’ equity1,465,763 1,250,792 
Total liabilities and stockholders’ equity$14,646,480 $13,795,156 
Net interest income$292,210 $261,419 
Interest rate spread6
3.97 %3.67 %
Net interest margin7
4.16 %3.89 %
1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans include average balances of $26.6 million and $27.4 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 six-month periods, respectively.
5Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets.
6Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
7Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values.:
 For the Three Months EndedFor the Six Months Ended
December 31,December 31,
2021 vs 20202021 vs 2020
 Increase (Decrease) Due toIncrease (Decrease) Due to
(Dollars in thousands)VolumeRateTotal
Increase
(Decrease)		VolumeRateTotal
Increase
(Decrease)
Increase / (decrease) in interest income:
Loans$9,016 $(6,632)$2,384 $19,665 $(9,529)$10,136 
Interest-earning deposits in other financial institutions(96)245 149 (283)516 233 
Mortgage-backed and other investment securities(758)(822)(1,580)(1,179)(1,657)(2,836)
Securities borrowed and margin lending1,674 (974)700 5,097 (2,623)2,474 
Stock of the regulatory agencies(1)45 44 — 111 111 
$9,835 $(8,138)$1,697 $23,300 $(13,182)$10,118 
Increase / (decrease) in interest expense:
Interest-bearing demand and savings$(655)$(3,177)$(3,832)$(1,313)$(8,043)$(9,356)
Time deposits(1,886)(2,572)(4,458)(4,727)(6,049)(10,776)
Securities loaned85 (122)(37)239 (149)90 
Advances from the FHLB188 (541)(353)446 (1,155)(709)
Borrowings, subordinated notes and debentures
(1,544)445 (1,099)(1,628)1,706 78 
$(3,812)$(5,967)$(9,779)$(6,983)$(13,690)$(20,673)

Provision for Credit Losses
The provision for credit losses was $4.0 million for the three months ended December 31, 2021 compared to $8.0 million for the three months ended December 31, 2020. The provision for credit losses was $8.0 million for the six months ended December 31, 2021 compared to $19.8 million for the six months ended December 31, 2020. The decreases in the provision for the three and six months ended December 31, 2021 were due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic between December 31, 2020 and December 31, 2021, partially offset by loan growth and changes in loan mix. The Provisions for credit losses for the three and six months ended December 31, 2021 were primarily comprised of provisions in commercial real estate and consumer and auto due to growth in these segments of the loan portfolio. Provisions for credit losses are charged to income to bring the allowance for credit losses - loans to a level deemed appropriate by management based on the factors discussed under “Financial Condition—Asset Quality and Allowance for Credit Losses - Loans.”



39
Non-Interest Income
The following table sets forth information regarding our non-interest income for the periods shown:
For the Three Months EndedFor the Six Months Ended
December 31,December 31,
(Dollars in thousands)20212020Inc (Dec)20212020Inc (Dec)
Prepayment penalty fee income$3,294 $1,579 $1,715 $6,280 $2,947 $3,333 
Gain on sale – other28 156 (128)45 490 (445)
Mortgage banking income4,612 10,651 (6,039)9,865 30,218 (20,353)
Broker-dealer fee income14,367 6,287 8,080 26,133 11,989 14,144 
Banking and service fees8,486 10,045 (1,559)15,166 18,929 (3,763)
Total non-interest income$30,787 $28,718 $2,069 $57,489 $64,573 $(7,084)
Non-interest income increased $2.1 million to $30.8 million for the three months ended December 31, 2021 compared to the three months ended December 31, 2020. The increase was primarily the result of an $8.1 million increase in broker-dealer fee income driven by custody and mutual fund fees earned by the newly acquired AAS division and an increase of $1.7 million in prepayment penalty fee income, partially offset by a decrease of $6.0 million mortgage banking income and a decrease of $1.6 million in banking and service fees, from Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur for the three months ended December 31, 2021. Non-interest income decreased $7.1 million to $57.5 million for the six months ended December 31, 2021 compared to the six months ended December 31, 2020. The change was primarily the result of a $20.4 million decrease in mortgage banking income and a $3.8 million decrease in banking and service fees, from Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur in the six months ended December 31, 2021, partially offset by a $14.1 million increase in broker-dealer fee income driven by custody and mutual fund fees earned by the newly acquired AAS division and an increase of $3.3 million in prepayment penalty fee income.



40
Non-Interest Expense
    The following table sets forth information regarding our non-interest expense for the periods shown:
 For the Three Months EndedFor the Six Months Ended
December 31,December 31,
(Dollars in thousands)20212020Inc (Dec)20212020Inc (Dec)
Salaries and related costs$39,979 $38,199 $1,780 $80,716 $76,822 $3,894 
Data processing12,199 9,673 2,526 24,291 17,601 6,690 
Advertising and promotional3,402 3,783 (381)6,774 6,339 435 
Depreciation and amortization6,785 5,862 923 12,513 12,048 465 
Professional services5,943 5,629 314 10,488 11,628 (1,140)
Occupancy and equipment3,342 3,132 210 6,523 6,143 380 
FDIC and regulatory fees2,475 2,601 (126)4,741 5,293 (552)
Broker-dealer clearing charges3,678 2,451 1,227 7,683 4,708 2,975 
General and administrative expense8,216 4,967 3,249 16,721 11,261 5,460 
Total non-interest expenses
$86,019 $76,297 $9,722 $170,450 $151,843 $18,607 
Non-interest expense, which is comprised of compensation, data processing, depreciation and amortization, advertising and promotional, professional services, occupancy and equipment, FDIC and regulator fees, broker-dealer clearing charges and other operating expenses, was $86.0 million for the three months ended December 31, 2021, compared to $76.3 million for the three months ended December 31, 2020. Non-interest expense was $170.5 million for the six months ended December 31, 2021, up from $151.8 million for the six months ended December 31, 2020. The increases for the three and six months ended December 31, 2021 were generally due to the addition of AAS and the expansion of the Company specifically in areas related to lending and deposits.
Total salaries and related costs increased $1.8 million to $40.0 million for the three months ended December 31, 2021 compared to $38.2 million for the three months ended December 31, 2020 and increased $3.9 million to $80.7 million for the six months ended December 31, 2021 compared to $76.8 million for the six months ended December 31, 2020. The increases in compensation expense for the three and six months ended December 31, 2021 were primarily due to increased staffing levels as a result of the AAS acquisition. Our staff increased to 1,280 from 1,157, or 10.6% between December 31, 2021 and 2020.
Data processing expense increased $2.5 million for the three months ended December 31, 2021 compared to three months ended December 31, 2020, and increased $6.7 million for the six months ended December 31, 2021 compared to the six month period ended December 31, 2020, primarily due to enhancements to customer interfaces and the Company’s core processing systems.
Advertising and promotional expense decreased $0.4 million and increased $0.4 million for the three and six months ended December 31, 2021, compared to the three and six months ended December 31, 2020, respectively. Fluctuations are mainly the result of changes in lead generation and deposit marketing costs.
Depreciation and amortization expense increased $0.9 million and $0.5 million for the three and six months ended December 31, 2021, compared to the three and six months ended December 31, 2020, respectively. The increases for the three and six months ended December 31, 2021 were primarily due to amortization of intangibles as a result of the AAS acquisition and depreciation on lending platform enhancements and infrastructure development.
Professional services expense increased $0.3 million and decreased $1.1 million for the three and six months ended December 31, 2021, compared to the three and six months ended December 31, 2020, respectively. Professional services charges increased due primarily to increased legal expense during the three months ended December 31, 2021. The decreased for the six months ended December 31, 2021, was primarily the result of lower legal expense, compared to the six months ended December 31, 2020.
Occupancy and equipment expense increased by $0.2 million and $0.4 million for the three and six months ended December 31, 2021 compared to the three and six months ended December 31, 2020, respectively. The changes for the three and six months ended December 31, 2021 are primarily due to annual cost increases in our office space lease agreements and the addition of an assumed office space lease for our AAS employees.



41
Our cost of FDIC and regulatory fees decreased $0.1 million and $0.6 million for the three and six months ended December 31, 2021, compared to the three and six month period last year, respectively. The decreases were due to favorable fluctuations in the Bank’s assessment rate. As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.
Broker-dealer clearing charges increased $1.2 million and $3.0 million for the three and six months ended December 31, 2021 compared to the three and six months ended December 31, 2020, respectively. The increases were attributable to the acquisition of AAS and increased clearing charges due to higher activity during the three and six months ended December 31, 2021.
Other general and administrative costs increased by $3.2 million and $5.5 million for the three and six months ended December 31, 2021, compared to the three and six months ended December 31, 2020, respectively. The increase in the three months ended December 31, 2021 as compared to the three months ended December 31, 2020 was primarily due to a $1.0 million provision to allowance for credit losses of unfunded commitments, compared to a $1.0 million reduction in the 2020 period, increased loan processing costs, and increased travel costs. The increase in the six months ended December 31, 2021 as compared to December 31, 2020 was primarily due to a $3.0 million provision to allowance for credit losses of unfunded commitments, increased loan processing costs and increased travel costs.
Provision for Income Taxes
Our effective income tax rates (income tax provision divided by net income before income tax) for the three months ended December 31, 2021 and 2020 were 29.59% and 30.22%, respectively. Our effective income tax rates for the six months ended December 31, 2021 and 2020 were 29.34% and 30.15%, respectively. The change in effective income tax rates between periods are primarily the result of changes in tax benefits from stock compensation.
SEGMENT RESULTS
Our Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. The Company operates through two operating segments: Banking Business and Securities Business. In order to reconcile the two segments to the unaudited condensed consolidated totals, the Company includes parent-only activities and intercompany eliminations. The following tables present the operating results of the segments:
For the Three Months Ended December 31, 2021
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$142,259 $4,506 $(1,197)$145,568 
Provision for credit losses4,000 — — 4,000 
Non-interest income16,295 16,454 (1,962)30,787 
Non-interest expense62,449 21,654 1,916 86,019 
Income before taxes$92,105 $(694)$(5,075)$86,336 
For the Three Months Ended December 31, 2020
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$132,166 $4,260 $(2,334)$134,092 
Provision for credit losses8,000 — — 8,000 
Non-interest income22,295 6,572 (149)28,718 
Non-interest expense62,474 11,312 2,511 76,297 
Income before taxes$83,987 $(480)$(4,994)$78,513 
42
For the Six Months Ended December 31, 2021
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$284,500 $10,682 $(2,972)$292,210 
Provision for credit losses8,000 — — 8,000 
Non-interest income31,123 29,560 (3,194)57,489 
Non-interest expense125,174 40,927 4,349 170,450 
Income before taxes$182,449 $(685)$(10,515)$171,249 
For the Six Months Ended December 31, 2020
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$255,174 $9,154 $(2,909)$261,419 
Provision for credit losses19,800 — — 19,800 
Non-interest income52,507 12,356 (290)64,573 
Non-interest expense123,691 22,664 5,488 151,843 
Income before taxes$164,190 $(1,154)$(8,687)$154,349 
Banking Business
For the three months ended December 31, 2021, our Banking Business segment had income before taxes of $92.1 million compared to income before taxes of $84.0 million for the three months ended December 31, 2020. For the six months ended December 31, 2021, we had income before taxes of $182.4 million compared to income before taxes of $164.2 million for the six months ended December 31, 2020. For the three and six months ended December 31, 2020, the increase in income before taxes was mainly due to an increase in net interest income primarily from a decline in rates of interest-bearing demand and savings deposits and time deposits and a decrease in provision for credit losses, partially offset by a decrease in mortgage banking, compared to the three and six months ended December 31, 2020.
We consider the ratios shown in the table below to be key indicators of the performance of our Banking Business segment:
At or for the Three Months EndedAt or for the Six Months Ended
December 31, 2021December 31, 2020December 31, 2021December 31, 2020
Efficiency ratio39.39 %40.45 %39.66 %40.20 %
Return on average assets1.92 %1.80 %1.92 %1.79 %
Interest rate spread4.14 %3.93 %4.23 %3.82 %
Net interest margin4.30 %4.11 %4.39 %4.01 %
Our Banking Business segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our Banking Business and reduce our consolidated net interest margin, such as the borrowing costs at our Parent Company and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in our Securities Business, including items related to securities financing operations that typically decrease net interest margin.

43
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking Business segment’s information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin:
 For the Three Months Ended
December 31,
 20212020
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans3, 4
$12,076,831 $148,960 4.93 %$11,364,115 $146,327 5.15 %
Interest-earning deposits in other financial institutions963,533 376 0.16 %1,239,160 324 0.10 %
Mortgage-backed and other investment securities4
163,417 1,458 3.57 %232,518 3,072 5.28 %
Stock of the regulatory agencies17,402 260 5.98 %17,250 216 5.01 %
Total interest-earning assets13,221,183 151,054 4.57 %12,853,043 149,939 4.67 %
Non-interest-earning assets301,502 159,802 
Total assets$13,522,685 $13,012,845 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$6,619,803 $4,316 0.26 %$7,391,544 $8,354 0.45 %
Time deposits1,333,848 3,506 1.05 %1,860,058 7,964 1.71 %
Advances from the FHLB272,033 973 1.43 %234,649 1,326 2.26 %
Borrowings, subordinated notes and debentures
261 — — %147,354 130 0.35 %
Total interest-bearing liabilities8,225,945 8,795 0.43 %9,633,605 17,774 0.74 %
Non-interest-bearing demand deposits3,784,965 2,057,615 
Other non-interest-bearing liabilities131,229 126,001 
Stockholders’ equity1,380,546 1,195,624 
Total liabilities and stockholders’ equity$13,522,685 $13,012,845 
Net interest income$142,259 $132,165 
Interest rate spread5
4.14 %3.93 %
Net interest margin6
4.30 %4.11 %
1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans include average balances of $26.5 million and $27.3 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 three-month periods, respectively.
5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.




44
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking Business segment’s information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin:
 For the Six Months Ended
December 31,
 20212020
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans3, 4
$11,849,452 $297,803 5.03 %$11,077,492 $287,005 5.18 %
Interest-earning deposits in other financial institutions921,695 713 0.15 %1,390,747 716 0.10 %
Mortgage-backed and other investment securities4
171,981 3,004 3.49 %229,799 5,928 5.16 %
Stock of the regulatory agencies17,613 530 6.02 %17,250 419 4.86 %
Total interest-earning assets12,960,741 302,050 4.66 %12,715,288 294,068 4.63 %
Non-interest-earning assets294,156 156,007 
Total assets$13,254,897 $12,871,295 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$6,617,301 $7,910 0.24 %$7,245,289 $17,509 0.48 %
Time deposits1,348,454 7,651 1.13 %1,959,299 18,427 1.88 %
Advances from the FHLB283,717 1,989 1.40 %238,574 2,698 2.26 %
Borrowings, subordinated notes and debentures
152 — — %149,653 262 0.35 %
Total interest-bearing liabilities8,249,624 17,550 0.43 %9,592,815 38,896 0.81 %
Non-interest-bearing demand deposits3,511,837 1,988,235 
Other non-interest-bearing liabilities141,222 130,736 
Stockholders’ equity1,352,214 1,159,509 
Total liabilities and stockholders’ equity$13,254,897 $12,871,295 
Net interest income$284,500 $255,172 
Interest rate spread5
4.23 %3.82 %
Net interest margin6
4.39 %4.01 %
1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans include average balances of $26.6 million and $27.4 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 six-month periods, respectively.
5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.


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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our net interest income for our Banking Business segment. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values.:
 For the Three Months EndedFor the Six Months Ended
December 31,December 31,
2021 vs 20202021 vs 2020
 Increase (Decrease) Due toIncrease (Decrease) Due to
(Dollars in thousands)VolumeRateTotal
Increase
(Decrease)		VolumeRateTotal
Increase
(Decrease)
Increase / (decrease) in interest income:
Loans$9,002 $(6,369)$2,633 $19,367 $(8,569)$10,798 
Interest-earning deposits in other financial institutions(87)139 52 (282)279 (3)
Mortgage-backed and other investment securities(772)(842)(1,614)(1,279)(1,645)(2,924)
Stock of the regulatory agencies, at cost2 42 44 9 102 111 
$8,145 $(7,030)$1,115 $17,815 $(9,833)$7,982 
Increase / (decrease) in interest expense:
Interest-bearing demand and savings$(800)$(3,238)$(4,038)$(1,418)$(8,181)$(9,599)
Time deposits(1,886)(2,572)(4,458)(4,727)(6,049)(10,776)
Advances from the FHLB188 (541)(353)446 (1,155)(709)
Borrowings, subordinated notes and debentures
(65)(65)(130)(131)(131)(262)
$(2,563)$(6,416)$(8,979)$(5,830)$(15,516)$(21,346)
The Banking Business segment’s net interest income for the three and six months ended December 31, 2021 totaled $142.3 million and $284.5 million, an increase of 7.6% and an increase of 11.5%, compared to net interest income of $132.2 million and $255.2 million for the three and six months ended December 31, 2020, respectively. The increase for the three and six months ended December 31, 2021 was primarily due to the reduction in the rates paid on interest-bearing demand and savings deposits, and increased interest income due to growth in the loan portfolio, partially offset by reduced yields on interest earning assets.
The Banking Business segment’s non-interest income decreased $6.0 million to $16.3 million and decreased $21.4 million to $31.1 million for the three and six months ended December 31, 2021 compared to the three and six months ended December 31, 2020, respectively. The net decrease was mainly the result of decreased mortgage banking income and decreased banking and service fees from Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur for the six months ended December 31, 2021, partially offset by increases in prepayment penalty fee income for the three and six months ended December 31, 2021, as compared to the three and six months ended December 31, 2020.
The Banking Business segment’s non-interest expense was flat for the three months ended December 31, 2021 and increased $1.5 million for the six months ended December 31, 2021 compared to the three and six months ended December 31, 2020. For the three months ended December 31, 2021 compared to the three months ended December 31, 2020, non-interest expense was flat due to a $3.4 million increase in other general and administrative expenses, partially offset by a $3.3 million decrease of salaries and related expenses. For the six months ended December 31, 2021 compared to the six months ended December 31, 2020, the $1.5 million increase was primarily due to a $5.2 million increase in other general and administrative expenses, a $4.8 million increase in data processing expense, and a $2.9 million increase in advertising and promotional expense, partially offset by a $6.4 million decrease of salaries and related expenses, a $2.1 million decrease in professional fees, a $1.3 million decrease in Depreciation and amortization, a $0.7 million decrease in Occupancy and equipment, and a $0.5 million decrease in regulatory fees.
Securities Business
For the three months ended December 31, 2021, our Securities Business segment had a loss before taxes of $0.7 million compared to a loss before taxes of $0.5 million for the three months ended December 31, 2020. For the six months ended
46
December 31, 2021, our Securities Business segment had a loss before taxes of $0.7 million compared to a loss before taxes of $1.2 million for the six months ended December 31, 2020.
Net interest income for the three months ended December 31, 2021, increased $0.2 million to $4.5 million compared to the three months ended December 31, 2020. Net interest income for the six months ended December 31, 2021 increased $1.5 million to $10.7 million compared to the six months ended December 31, 2020. The increases were primarily a result of increase in the average interest-earning balance of securities borrowed and margin lending. In the Securities Business, interest is earned through margin loan balances, securities borrowed, and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities lending.
Non-interest income during the three months ended December 31, 2021, increased $9.9 million to $16.5 million compared to the three months ended December 31, 2020. The increases were primarily $8.0 million attributable to the addition of AAS custody and mutual funds fees, an increase of $1.2 million in fees earned on FDIC insured bank deposits, an increase of $0.3 million in correspondent fees, and an increase of $0.2 million of clearing and custodial related fees. Non-interest income during the six months ended December 31, 2021 increased $17.2 million to $29.6 million compared to the six months ended December 31, 2020. The increases were primarily $13.3 million attributable to the addition of AAS custody and mutual funds fees, an increase of $2.1 million in fees earned on FDIC insured bank deposits, an increase of $0.9 million in correspondent fees, an increase of $0.6 million of clearing and custodial related fees, and an increase of $0.2 million of clearing technology services.
Non-interest expense increased $10.3 million to $21.7 million for the three months ended December 31, 2021 from the $11.3 million for the three months ended December 31, 2020. The increase was primarily related to an increase of $4.7 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of $1.5 million in data processing, an increase of $1.3 million depreciation and amortization expense, and an increase of $1.2 million in broker-dealer clearing charges. Non-interest expense increased $18.3 million to $40.9 million for the six months ended December 31, 2021, from $22.7 million for the six months ended December 31, 2020. The increase was primarily related to an increase of $9.1 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of $3.0 million in broker-dealer clearing charges, an increase of $1.8 million in data processing, an increase of $1.7 million depreciation and amortization expense, and an increase of $1.1 million occupancy and equipment expense. The increases were primarily the result of the addition of AAS.
Selected information concerning the Securities segment follows as of and for the three months ended:
December 31,
(Dollars in thousands)20212020
Compensation as a % of net revenue39.9 %33.2 %
FDIC insured program balances (end of period)$2,216,939 $772,801 
Customer margin balances (end of period)$328,607 $231,189 
Customer funds on deposit, including short credits (end of period)$259,626 $313,297 
Clearing:
Total tickets2,113,270 1,314,534 
Correspondents (end of period)68 63 
Securities lending:
Interest-earning assets – stock borrowed (end of period)$534,243 $317,571 
Interest-bearing liabilities – stock loaned (end of period)$578,762 $362,170 
FINANCIAL CONDITION
Balance Sheet Analysis
Total assets increased $1,282.4 million, or 9.0%, to $15.5 billion, as of December 31, 2021, up from $14.3 billion at June 30, 2021. The increase in total assets was mainly due to an increase of $1,192.4 million in net loans held for investment, an increase of $80.6 million in cash and cash equivalents, and an increase of $59.8 million in customer, broker-dealer and clearing payables, partially offset by a decrease of $84.8 million in securities borrowed. Total liabilities increased $1,160.2 million, primarily due to growth in deposits of $1,453.4 million, partially offset by a decrease of $196.0 million in advances from the FHLB and a decrease of $150.2 million in securities loaned.
47
Loans
Net loans held for investment increased 10.4% to $12.6 billion as of December 31, 2021 from $11.4 billion at June 30, 2021. The increase in the loan portfolio was primarily due to loan originations of $4.6 billion, partially offset by loan repayments and other adjustments of $3.4 billion.
The following table sets forth the composition of the loan portfolio as of the dates indicated:
December 31, 2021June 30, 2021
(Dollars in thousands)AmountPercentAmountPercent
Single Family - Mortgage & Warehouse$4,281,646 33.5 %$4,359,472 37.8 %
Multifamily and Commercial Mortgage2,483,932 19.5 %2,470,454 21.4 %
Commercial Real Estate3,857,367 30.2 %3,180,453 27.5 %
Commercial & Industrial - Non-RE1,631,811 12.8 %1,123,869 9.7 %
Auto & Consumer478,636 3.8 %362,180 3.1 %
Other22,282 0.2 %58,316 0.5 %
Total gross loans 12,755,674 100.0 %11,554,744 100.0 %
Allowance for credit losses - loans(140,489)(132,958)
Unaccreted discounts and loan fees(8,006)(6,972)
Total net loans$12,607,179 $11,414,814 
The Bank originates some single family interest only loans with terms that include repayments that are less than the repayments for fully amortizing loans. The Bank’s lending guidelines for interest only loans are adjusted for the increased credit risk associated with these loans by requiring borrowers with such loans to borrow at LTVs that are lower than standard amortizing ARM loans and by calculating debt to income ratios for qualifying borrowers based upon a fully amortizing payment, not the interest only payment. The Bank monitors and performs reviews of interest only loans. Adverse trends reflected in the Company’s delinquency statistics, grading and classification of interest only loans would be reported to management and the Board of Directors. As of December 31, 2021, the Company had $1.1 billion of interest only mortgage loans.
Asset Quality and Allowance for Loan and Lease Losses
Non-performing Assets
Non-performing loans are comprised of loans past due 90 days or more on nonaccrual status and other nonaccrual loans. Non-performing assets include non-performing loans plus other real estate owned and repossessed vehicles. At December 31, 2021, our non-performing loans totaled $145.9 million, or 1.14% of total gross loans and our non-performing loans and foreclosed assets or “non-performing assets” totaled $146.2 million, or 0.94% of total assets.
Non-performing assets consisted of the following as of the dates indicated:
(Dollars in thousands)December 31, 2021June 30, 2021Inc (Dec)
Non-performing assets:
Non-accrual loans and leases:
Single Family - Mortgage & Warehouse$122,326 $105,708 $16,618 
Multifamily and Commercial Mortgage7,688 20,428 (12,740)
Commercial Real Estate15,244 15,839 (595)
Commercial & Industrial - Non-RE— 2,942 (2,942)
Auto & Consumer620 278 342 
Other55 — 55 
Total non-performing loans145,933 145,195 738 
Foreclosed real estate— 6,547 (6,547)
Repossessed—Auto and RV251 235 16 
Total non-performing assets$146,184 $151,977 $(5,793)
Total non-performing loans as a percentage of total loans1.14 %1.26 %(0.12)%
Total non-performing assets as a percentage of total assets0.94 %1.07 %(0.13)%
48
Total non-performing assets decreased from $152.0 million at June 30, 2021 to $146.2 million at December 31, 2021. The decrease in non-performing assets of approximately $5.8 million, was primarily attributable to resolutions of multifamily and commercial mortgage loans, and foreclosed real estate. Non-performing single-family loans increased by $16.6 million. The Company ended forbearance for all single family mortgage borrowers during the quarter ended September 30, 2020. The weighted-average LTV of the non-performing single family mortgage loans was 56.5% as of December 31, 2021.
The Bank had no performing troubled debt restructurings as of December 31, 2021 and June 30, 2021. A troubled debt restructuring is a concession made to a borrower experiencing financial difficulties, typically permanent or temporary modifications of principal and interest payments or an extension of maturity dates. When a loan is delinquent and classified as a troubled debt restructuring, no interest is accrued until the borrower demonstrates over time (typically six months) that it can make payments. When a loan is considered a troubled debt restructuring and is on nonaccrual, it is considered non-performing and included in the table above.
Allowance for Credit Losses - Loans

On July 1, 2020, the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting, generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for greater detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance.

The following table reflects management’s allocation of the allowance for credit losses - loans by loan category and the ratio of each loan category to total loans as of the dates indicated:
December 31, 2021June 30, 2021
(Dollars in thousands)Amount
of
Allowance		Allocation
as a % of
Allowance		Amount
of
Allowance		Allocation
as a % of
Allowance
Single Family Real Estate$25,580 18.2 %$26,604 20.0 %
Multifamily Real Estate13,628 9.7 %13,146 9.9 %
Commercial Real Estate67,581 48.0 %57,928 43.6 %
Commercial and Industrial - Non-RE22,716 16.2 %28,460 21.4 %
Consumer and Auto10,921 7.8 %6,519 4.9 %
Other63 0.1 %301 0.2 %
Total$140,489 100.0 %$132,958 100.0 %
The provision for credit losses was $4.0 million and $8.0 million for the three months ended December 31, 2021 and 2020, respectively. The provision for credit losses was $8.0 million and $19.8 million for the six months ended December 31, 2021 and 2020, respectively. The decrease in the provision for credit losses for three and six months ended December 31, 2021, were due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic between December 31, 2020 and December 31, 2021, partially offset by loan growth and changes in loan mix. We believe that the lower average LTV in the Bank’s mortgage loan portfolio will continue to result in future lower average mortgage loan charge-offs when compared to many other comparable banks. The resolution of the Bank’s existing other real estate owned and non-performing loans should not have a significant adverse impact on our operating results.
Investment Securities
Total investment securities were $140.8 million as of December 31, 2021, compared with $189.3 million at June 30, 2021. During the six months ended December 31, 2021, we purchased securities for $12.3 million and received principal repayments of approximately $58.6 million in our available-for-sale portfolio. The remainder of the change for the available-for-sale portfolio is attributable to accretion and other activities.
49
Deposits
Deposits increased a net $1.5 billion, or 13.4%, to $12.3 billion at December 31, 2021, from $10.8 billion at June 30, 2021. Non-interest bearing deposits increased $1.4 billion, or 55.5%, to $3.8 billion at December 31, 2021, from June 30, 2021, primarily due to deposits provided by the AAS acquisition. Time deposits decreased $226.4 million as higher costing time deposits were run off.
The following table sets forth the composition of the deposit portfolio as of the dates indicated:
December 31, 2021June 30, 2021
(Dollars in thousands)Amount
Rate1
Amount
Rate1
Non-interest bearing$3,847,461 — %$2,474,424 — %
Interest bearing:
Demand3,620,686 0.16 %3,369,845 0.15 %
Savings3,514,610 0.23 %3,458,687 0.21 %
Total interest-bearing demand and savings7,135,296 0.20 %6,828,532 0.18 %
Time deposits:
$250 and under2
877,488 1.26 %1,070,139 1.30 %
Greater than $250408,927 0.45 %442,702 1.03 %
Total time deposits
1,286,415 1.01 %1,512,841 1.22 %
Total interest bearing2
8,421,711 0.32 %8,341,373 0.37 %
Total deposits$12,269,172 0.22 %$10,815,797 0.29 %
1 Based on weighted-average stated interest rates at end of period.
2 The total interest bearing includes brokered deposits of $415.3 million and $621.4 million as of December 31, 2021 and June 30, 2021, respectively, of which $350.0 million and $380.0 million, respectively, are time deposits classified as $250 and under.

The following table sets forth the number of deposit accounts by type as of the date indicated:
December 31, 2021June 30, 2021December 31, 2020
Non-interest bearing, prepaid and other39,698 36,72630,068 
Checking and savings accounts342,127 336,068314,145 
Time deposits10,234 12,81515,797 
Total number of deposit accounts392,059 385,609360,010

Borrowings
    The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
December 31, 2021June 30, 2021December 31, 2020
(Dollars in thousands)BalanceWeighted Average RateBalanceWeighted Average RateBalanceWeighted Average Rate
FHLB Advances$157,5002.29 %$353,5001.18 %$182,5002.21 %
Borrowings, subordinated notes and debentures260,4354.37 %221,3584.68 %418,4803.45 %
Total borrowings$417,9353.59 %$574,8580.73 %$600,9803.07 %
Weighted average cost of borrowings during the quarter2.64 %2.93 %2.97 %
Borrowings as a percent of total assets2.69 %4.03 %4.18 %
At December 31, 2021, total borrowings amounted to $417.9 million, down $156.9 million, or 27.3%, from June 30, 2021 and down $183.0 million or 30.5% from December 31, 2020. Borrowings as a percent of total assets were 2.69%, 4.03% and 4.18% at December 31, 2021, June 30, 2021 and December 31, 2020, respectively. Weighted average cost of borrowings during the quarter were 2.64%, 2.93% and 2.97% for the quarters ended December 31, 2021, June 30, 2021 and December 31, 2020, respectively.
50
We regularly use advances from the FHLB to manage our interest rate risk and, to a lesser extent, manage our liquidity position. Generally, FHLB advances with terms between three and ten years have been used to fund the purchase of single family and multifamily mortgages and to provide us with interest rate risk protection should rates rise.
Stockholders’ Equity
    Stockholders’ equity increased $122.2 million to $1,523.2 million at December 31, 2021 compared to $1,400.9 million at June 30, 2021. The increase was the result of our net income for the six months ended December 31, 2021 of $121.0 million, stock compensation expense of $2.4 million, partially offset by a $1.2 million decrease in other comprehensive income, net of tax.
During the three and six months ended December 31, 2021, the Company did not repurchase any common stock shares. The Company has $52.8 million remaining under the Board authorized stock repurchase program.

LIQUIDITY
Cash flow information is as follows:
For the Six Months Ended
December 31,
(Dollars in thousands)20212020
Operating Activities$(76,773)$284,417 
Investing Activities$(1,132,694)$(1,015,293)
Financing Activities$1,290,048 $223,552 
During the six months ended December 31, 2021, we had net cash outflows from operating activities of $76.8 million compared to inflows of $284.4 million for the six months ended December 31, 2020, primarily due to net income for each period. Net operating cash inflows and outflows fluctuate primarily due to the timing of the following: originations of loans held for sale, proceeds from loan sales, securities borrowed and loaned, and customer, broker-dealer and clearing receivables and payables, and changes in other assets and payables were the primary drivers.
Net cash outflows from investing activities totaled $1,132.7 million for the six months ended December 31, 2021, while outflows totaled $1,015.3 million for the six months ended December 31, 2020. The increase in outflows was primarily due to increased originations of loans partially offset by increased repayments on loans and the $54.8 million acquisition of AAS.
Net cash inflows from financing activities totaled $1,290.0 million for the six months ended December 31, 2021, compared to net cash outflows from financing activities of $223.6 million for the six months ended December 31, 2020. The primary driver behind the increase in net cash inflows was increased deposits provided in part, by the acquisition of AAS for the six months ended December 31, 2021.
During the six months ended December 31, 2021, the Bank could borrow up to 40.0% of its total assets from the FHLB. Borrowings are collateralized by the pledge of certain mortgage loans and investment securities to the FHLB. At December 31, 2021, the Company had $1,939.2 million available immediately and $3,449.5 million available with additional collateral. At December 31, 2021, we also had two unsecured federal funds purchase lines with two different banks totaling $175.0 million, under which no borrowings were outstanding.
The Bank has the ability to borrow short-term from the Federal Reserve Bank of San Francisco Discount Window. At December 31, 2021, the Bank did not have any borrowings outstanding and the amount available from this source was $2,433.9 million. The credit line is collateralized by consumer loans and mortgage-backed securities.
Axos Clearing has a total of $170.0 million in uncommitted secured lines of credit for borrowing as needed. As of December 31, 2021, there was $75.0 million outstanding. These credit facilities bear interest at rates based on the Federal Funds rate and are due upon demand.
Axos Clearing has a $50.0 million committed unsecured line of credit available for limited purpose borrowing. As of December 31, 2021, no borrowings were outstanding. This credit facility bears interest at rates based on the Federal Funds rate and are due upon demand.
We believe our liquidity sources to be stable and adequate for our anticipated needs and contingencies for the next 12 months and beyond. We believe we have the ability to increase our level of deposits and borrowings to address our liquidity needs for the foreseeable future.
51
OFF-BALANCE SHEET COMMITMENTS
At December 31, 2021, we had commitments to originate loans with an aggregate outstanding principal balance of $2,483.0 million, and commitments to sell loans with an aggregate outstanding principal balance of $50.0 million. We have no commitments to purchase loans, investment securities or any other unused lines of credit.
In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
CAPITAL RESOURCES AND REQUIREMENTS
Our Company and Bank are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. Failure by our Company or Bank to meet minimum capital requirements could result in certain mandatory and discretionary actions by regulators that could have a material adverse effect on our unaudited condensed consolidated financial statements. The Federal Reserve establishes capital requirements for our Company and the OCC has similar requirements for our Bank. The following tables present regulatory capital information for our Company and Bank. Information presented for December 31, 2021, reflects the Basel III capital requirements that became effective January 1, 2015 for both our Company and Bank. Under these capital requirements and the regulatory framework for prompt corrective action, our Company and Bank must meet specific capital guidelines that involve quantitative measures of our Company and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.
Quantitative measures established by regulation require our Company and Bank to maintain certain minimum capital amounts and ratios. Federal bank regulators require our Company and Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity tier 1 capital to risk-weighted assets of 4.5%, tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. To be “well capitalized,” our Company and Bank must maintain minimum leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. At December 31, 2021, our Company and Bank met all the capital adequacy requirements to which they were subject and were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since December 31, 2021 that would materially adversely change the Company’s and Bank’s capital classifications. From time to time, we may need to raise additional capital to support our Company’s and Bank’s further growth and to maintain their “well capitalized” status.
The Company and Bank elected the CECL 5-year transition guidance for calculating regulatory capital ratios and the December 31, 2021 ratios include this election. This guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through June 30, 2023. This cumulative amount will then be phased out of regulatory capital over the next three years.
52
The Company’s and Bank’s estimated capital amounts, capital ratios and capital requirements under Basel III were as follows:
Axos Financial, Inc.Axos Bank“Well 
Capitalized”
Ratio		Minimum Capital
Ratio
(Dollars in millions)December 31, 2021June 30,
2021		December 31, 2021June 30,
2021
Regulatory Capital:
Tier 1 $1,390 $1,309 $1,366 $1,263 
Common equity tier 1 $1,390 $1,309 $1,366 $1,263 
Total capital (to risk-weighted assets)$1,676 $1,588 $1,469 $1,358 
Assets:
Average adjusted$14,755 $14,851 $13,491 $13,360 
Total risk-weighted $13,781 $11,523 $12,523 $10,283 
Regulatory Capital Ratios:
Tier 1 leverage (core) capital to adjusted average assets9.42 %8.82 %10.13 %9.45 %5.00 %4.00 %
Common equity tier 1 capital (to risk-weighted assets)10.08 %11.36 %10.91 %12.28 %6.50 %4.50 %
Tier 1 capital (to risk-weighted assets)10.08 %11.36 %10.91 %12.28 %8.00 %6.00 %
Total capital (to risk-weighted assets)12.16 %13.78 %11.73 %13.21 %10.00 %8.00 %
Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At December 31, 2021, our Company and Bank are in compliance with the capital conservation buffer requirement, which sets the common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratio minimums to 7.0%, 8.5% and 10.5%, respectively.
Securities Business
Pursuant to the net capital requirements of the Exchange Act, Axos Clearing, is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, the Company has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. Under the alternate method, the Company may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.
The net capital positions of Axos Clearing were as follows:
(Dollars in thousands)December 31, 2021June 30, 2021
Net capital$39,453 $35,950 
Excess Capital$32,171 $27,904 
Net capital as a percentage of aggregate debit items10.84 %8.94 %
Net capital in excess of 5% aggregate debit items$21,249 $15,836 
Axos Clearing as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. At December 31, 2021, the Company had a deposit requirement of $224.1 million and maintained a deposit of $213.1 million. On January 3, 2022, the company made a deposit of $11.0 million.
Certain broker-dealers have chosen to maintain brokerage customer accounts at Axos Clearing. To allow these broker-dealers to classify their assets held by the Company as allowable assets in their computation of net capital, the Company computes a separate reserve requirement for Proprietary Accounts of Brokers (PAB). At December 31, 2021, the Company had a deposit requirement of $44.0 million and maintained a deposit of $46.5 million. On January 3, 2022, the Company made a withdrawal in the amount of $2.5 million.
53
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We measure interest rate sensitivity as the difference between amounts of interest-earning assets and interest-bearing liabilities that mature or contractually re-price within a given period of time. The difference, or the interest rate sensitivity gap, provides an indication of the extent to which an institution’s interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. In a rising interest rate environment, an institution with a positive gap would be in a better position than an institution with a negative gap to invest in higher yielding assets or to have its asset yields adjusted upward, which would cause the yield on its assets to increase at a faster pace than the cost of its interest-bearing liabilities. During a period of falling interest rates, however, an institution with a positive gap would tend to have its assets reprice at a faster rate than one with a negative gap, which would tend to reduce the growth in its net interest income.
Banking Business
The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at December 31, 2021 and the portions of each financial instrument that are expected to mature or reset interest rates in each future period:
Term to Repricing, Repayment, or Maturity at
December 31, 2021
(Dollars in thousands)Six Months or LessOver Six
Months Through
One Year		Over One
Year Through
Five Years		Over Five
Years		Total
Interest-earning assets:
Cash and cash equivalents$821,648 $— $— $— $821,648 
Securities1
130,742 1,909 13,642 17,964 164,257 
Stock of the FHLB, at cost17,250 — — — 17,250 
Loans—net of allowance for credit loss8,301,727 1,547,387 2,785,738 73,714 12,708,566 
Loans held for sale38,874 — — — 38,874 
Total interest-earning assets9,310,241 1,549,296 2,799,380 91,678 13,750,595 
Non-interest earning assets— — — — 296,486 
Total assets$9,310,241 $1,549,296 $2,799,380 $91,678 $14,047,081 
Interest-bearing liabilities:
Interest-bearing deposits$6,513,865 $1,476,260 $467,701 $(1,536)$8,456,290 
Advances from the FHLB40,000 17,500 40,000 60,000 157,500 
Total interest-bearing liabilities6,553,865 1,493,760 507,701 58,464 8,613,790 
Other non-interest-bearing liabilities— — — — 4,037,553 
Stockholders’ equity— — — — 1,395,738 
Total liabilities and equity$6,553,865 $1,493,760 $507,701 $58,464 $14,047,081 
Net interest rate sensitivity gap$2,756,376 $55,536 $2,291,679 $33,214 $5,136,805 
Cumulative gap$2,756,376 $2,811,912 $5,103,591 $5,136,805 $5,136,805 
Net interest rate sensitivity gap—as a % of total interest earning assets20.05 %0.40 %16.67 %0.24 %37.36 %
Cumulative gap—as % of total interest earning assets20.05 %20.45 %37.12 %37.36 %37.36 %
1    Comprised of agency and non-agency mortgage-backed securities, municipal securities and other non-agency debt securities, which are classified as available-for-sale.
The above table provides an approximation of the projected re-pricing of assets and liabilities at December 31, 2021 on the basis of contractual maturities, adjusted for anticipated prepayments of principal and scheduled rate adjustments. The loan and securities prepayment rates reflected herein are based on historical experience. For the non-maturity deposit liabilities, we use decay rates and rate adjustments based upon our historical experience. Actual repayments of these instruments could vary substantially if future experience differs from our historic experience.
Although “gap” analysis is a useful measurement device available to management in determining the existence of interest rate exposure, its static focus as of a particular date makes it necessary to utilize other techniques in measuring exposure to changes in interest rates. For example, gap analysis is limited in its ability to predict trends in future earnings and makes no
54
assumptions about changes in prepayment tendencies, deposit or loan maturity preferences or repricing time lags that may occur in response to a change in the interest rate environment.
The following table indicates the sensitivity of net interest income movements to parallel instantaneous shocks in interest rates for the future 1-12 months and 13-24 months’ time periods. For purposes of modeling net interest income sensitivity the Bank assumes no growth in the balance sheet other than for retained earnings:
As of December 31, 2021
First 12 MonthsNext 12 Months
(Dollars in thousands)Net Interest IncomePercentage Change from BaseNet Interest IncomePercentage Change from Base
Up 200 basis points$602,020 8.8 %$594,198 9.1 %
Base$553,393 — %$544,390 — %
Down 100 basis points$543,760 (1.7)%$527,446 (3.1)%
We attempt to measure the effect market interest rate changes will have on the net present value of assets and liabilities, which is defined as market value of equity. We analyze the market value of equity sensitivity to an immediate parallel and sustained shift in interest rates derived from the current treasury and LIBOR yield curves. For rising interest rate scenarios, the base market interest rate forecast was increased by 100, 200 and 300 basis points. For falling interest rate scenarios, we used a 100 basis point decrease due to limitations inherent in the current rate environment.
The following table indicates the sensitivity of market value of equity to the interest rate movement described above:
As of December 31, 2021
(Dollars in thousands)Net
Present Value		Percentage Change from BaseNet
Present
Value as a
Percentage
of Assets
Up 300 basis points$1,527,926 (0.8)%11.0 %
Up 200 basis points$1,588,960 3.2 %11.3 %
Up 100 basis points$1,585,104 2.9 %11.2 %
Base$1,540,147 — %10.8 %
Down 100 basis points$1,339,206 (13.0)%9.3 %
The computation of the prospective effects of hypothetical interest rate changes is based on numerous assumptions, including relative levels of interest rates, asset prepayments, runoffs in deposits and changes in repricing levels of deposits to general market rates, and should not be relied upon as indicative of actual results. Furthermore, these computations do not take into account any actions that we may undertake in response to future changes in interest rates. Those actions include, but are not limited to, making change in loan and deposit interest rates and changes in our asset and liability mix.
Securities Business
Our Securities Business is exposed to market risk primarily due to its role as a financial intermediary in customer transactions, which may include purchases and sales of securities, securities lending activities, and in our trading activities, which are used to support sales, underwriting and other customer activities. We are subject to the risk of loss that may result from the potential change in value of a financial instrument as a result of fluctuations in interest rates, market prices, investor expectations and changes in credit ratings of the issuer.
Our Securities Business is exposed to interest rate risk as a result of maintaining inventories of interest rate sensitive financial instruments and other interest earning assets including customer and correspondent margin loans and securities borrowing activities. Our exposure to interest rate risk is also from our funding sources including customer and correspondent cash balances, bank borrowings and securities lending activities. Interest rates on customer and correspondent balances and securities produce a positive spread with rates generally fluctuating in parallel.
With respect to securities held, our interest rate risk is managed by setting and monitoring limits on the size and duration of positions and on the length of time securities can be held. Much of the interest rates on customer and correspondent margin loans are indexed and can vary daily. Our funding sources are generally short term with interest rates that can vary daily.
Our Securities Business is engaged in various brokerage and trading activities that expose us to credit risk arising from potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and
55
monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.
Collateral underlying margin loans to customers and correspondents and with respect to securities lending activities is marked to market daily and additional collateral is required as necessary.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.”

ITEM 4.CONTROLS AND PROCEDURES
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer along with our Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
56
PART II—OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS
The information set forth in Note 8 – “Commitments And Contingencies” to the Unaudited Condensed Consolidated Financial Statements is incorporated herein by reference.
In addition, from time to time we may be a party to other claims or litigation that arise in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of the Bank. None of such matters are expected to have a material adverse effect on the Company’s financial condition, results of operations or business.

ITEM 1A.RISK FACTORS
We face a variety of risks that are inherent in our business and our industry. These risks are described in more detail under Part 1, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2021. We encourage you to read these factors in their entirety. Moreover, other factors may also exist that we cannot anticipate or that we currently do not consider to be significant based on information that is currently available.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth our market repurchases of Axos common stock and the Axos common shares retained in connection with net settlement of restricted stock awards during the quarter ended December 31, 2021.
(Dollars in thousands, except per share data)Number
of Shares
Purchased		Average Price
Paid Per Shares		Total Number of
Shares
Purchased as Part of Publicly  Announced
Plans or Programs		Approximate Dollar value of
Shares that May
Yet be Purchased
Under the Plans
or Programs
Stock Repurchases1
Quarter Ended December 31, 2021
October 1, 2021 to October 31, 2021— $— — $— 
November 1, 2021 to November 30, 2021— $— — $— 
December 1, 2021 to December 31, 2021— $— — $— 
For the Three Months Ended December 31, 2021— $— — $52,764 
Stock Retained in Net Settlement2
October 1, 2021 to October 31, 2021866 
November 1, 2021 to November 30, 2021556 
December 1, 2021 to December 31, 2021856 
For the Three Months Ended December 31, 20212,278 
1 On March 17, 2016, the Board of Directors of the Company authorized a program to repurchase up to $100 million of common stock and extended the program by an additional $100 million on August 2, 2019. The share repurchase program will continue in effect until terminated by the Board of Directors of the Company.
2 Consists of shares withheld from settlement of equity awards under the amended and restated 2014 Stock Incentive Plan related to tax obligations associated with settlement.


ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.

57
ITEM 5.    OTHER INFORMATION
    None.

ITEM 6.EXHIBITS
Exhibit
Number		DescriptionIncorporated By Reference to
10.1Amended and Restated 2014 Stock Incentive Plan
31.1Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INSInline XBRL Instance DocumentThe instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema DocumentFiled herewith.
101.CALInline XBRL Taxonomy Calculation Linkbase DocumentFiled herewith.
101.LABInline XBRL Taxonomy Label Linkbase DocumentFiled herewith.
101.PREInline XBRL Taxonomy Presentation Linkbase DocumentFiled herewith.
101.DEFInline XBRL Taxonomy Definition DocumentFiled herewith.
104Cover Page Interactive Data FileFormatted as Inline XBRL and contained in Exhibit 101



58
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Axos Financial, Inc.
Dated:January 27, 2022By:    /s/ Gregory Garrabrants
Gregory Garrabrants
President and Chief Executive Officer
(Principal Executive Officer)
Dated:January 27, 2022By:    /s/ Derrick K. Walsh
Derrick K. Walsh
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
59

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